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, 1998
                       Commission file number 1-11700

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

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

34-40 Bear Hill Road, Waltham, Massachusetts             02451
  (Address of principal executive offices)             (Zip Code)

                               (781) 890-3766
            (Registrant's telephone number, including area code)

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

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

Common Stock                                    Boston Stock Exchange
Common Stock Warrants                           NASDAQ Stock Exchange

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

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

      The registrant had revenues of $12,327,352 in its most recent fiscal 
year.  The aggregate market value of the voting stock held by non-affiliates 
of the registrant on December 14, 1998 was $5,260,377.  As of December 14, 
1998, 7,851,890 shares of Common Stock, $.01 par value per share and 
2,695,255 of registered Common Stock Warrants, were outstanding.

      Certain items of Part III of this Form 10-KSB incorporate by reference 
certain portions of the registrant's definitive proxy statement to be filed 
with the Securities and Exchange Commission in connection with the 
registrant's 1999 Annual Meeting of Stockholders.

      This report contains certain forward-looking statements that are 
subject to risks and uncertainties, including but not limited to those 
discussed herein in the section entitled "Management's Discussion and 
Analysis of Financial Condition and Results of Operations" and those 
discussed in the section entitled "Risk Factors" in the Prospectus contained 
in the Company's Registration Statements on Form S-3, File Nos. 333-6147 and 
33-80009 (which section is hereby incorporated by reference herein).  These 
risks and uncertainties may cause the Company's actual results in future 
periods to differ materially from its historical results, and from any 
opinions or statements expressed in forward-looking statements.  Such 
forward-looking statements speak only as of the date of this report, and the 
registrant cautions readers not to place undue reliance on these statements.

Item 1.  Business.

General

      Hemagen Diagnostics, Inc. (the "Company") develops, manufactures and 
markets proprietary medical diagnostic test kits, or "assays," used to aid 
in the diagnosis of autoimmune and infectious diseases, in general health 
assessment and for research purposes.  The Company also develops, 
manufactures and markets materials for the manufacture of such diagnostic 
test kits. The Company generally focuses on  markets which it believes offer 
significant growth potential.  In addition to the internal development of 
products, the Company has sought to enter high growth markets via the 
acquisition of synergistic companies, products and assets.

      The Company's most recent acquisition was the September 1, 1998 
acquisition of the Analyst automated clinical chemistry system (The 
"Analyst") from Dade Behring, Inc. ("Dade").  This acquisition positions the 
Company for growth in the $1.6 billion point of care market as well as the 
physician office laboratory and veterinary diagnostic markets.  The Analyst 
is a patent protected, low cost, bench top clinical chemistry instrument and 
reagent system.  It is the only general chemistry system to offer both 
profile and single test capability and it is cleared by the United States 
Food and Drug Administration ("FDA") for marketing in the United States.  
The Company has signed a separate contract with Dade to continue to 
manufacture Analyst equipment and reagents for a period of one to three 
years.  After this period Reagents Applications, Inc. ("RAI"), Hemagen's 
clinical chemistry unit will produce the reagents for the Analyst, while 
Hemagen's facility in Columbia, Maryland will assemble the unit's rotors and 
ship completed products.

      On November 1, 1996, the Company completed the purchase of 
substantially all the assets of Cellular Products, Inc., now known as 872 
Main Street Corporation.  872 Main Street Corporation was operating under 
the provisions of Chapter 11 of the United States Bankruptcy Code.  The 
Company continues to operate the facility located in Buffalo, New York 
through its wholly owned subsidiary, Cellular Products, Inc.  ("CPI").  CPI 
manufactures biotechnology materials and assays for research and for the 
manufacture of clinical diagnostic test kits.  CPI's principal focus is on 
infectious diseases, particularly retroviruses such as HIV and HTLV.  Its 
products are used in the growth and testing of these viruses and as raw 
materials by manufacturers of clinical diagnostic assays for HIV and HTLV.  
The product mix includes enzyme oligonucleotide assays, monoclonal 
antibodies, recombinant growth factors, viral lysates and bulk raw 
materials.  CPI presently manufactures a significant amount of material for 
use in the Company's clinical diagnostic tests.

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

      In July 1995, the Company completed the acquisition of a line of 
diagnostic test kits using immunofluorescence, from Schiapparelli 
Biosystems, Inc. (The "VIRGO Acquisition").  These acquired assays are sold 
under the registered trademark VIRGO(R).  VIRGO(R)  kits are considered 
among the most reliable in the industry.  Hemagen's VIRGO(R) kits are often 
used to confirm a diagnosis achieved by other methods. 

      Prior to July 1995, the Company's products were based primarily on two 
diagnostic technologies, hemagglutination and enzyme-linked immunosorbence 
("ELISA" or "EIA").  The Company owns a proprietary technique for preserving 
red blood cells, a key component of the Company's hemagglutination assays.  
This technology enables the Company to manufacture products which have a 
shelf life of up to 24 months (compared to a typical shelf life of 30 to 60 
days for traditional hemagglutination processes), provides quick and 
accurate results, requires no special laboratory equipment to perform and 
are more reliable than previously available hemagglutination assays.  The 
extended shelf life and improvements in the consistency of these assays 
substantially eliminate limitations previously encountered in the use of 
hemagglutination assays.

      The Company offers approximately 135 test kits that have been cleared 
by the FDA for sale in the United States.  The Company markets and sells its 
brand name products worldwide, directly through an international sales force 
and through national and international distributors and manufacturers' 
representatives.  The Company markets its products in South America through 
its majority owned subsidiary, Hemagen Diagnosticos Comercio, Importacao e 
Exportacao, Ltd., a Brazilian limited liability company ("HDC").  In 
addition, the Company sells certain of its products on a private-label basis 
to multinational distributors of medical diagnostics.

      In December 1994 the Company entered into a five-year agreement (the 
"Carter-Wallace Agreement") with Carter-Wallace, Inc. ("Carter-Wallace") to 
manufacture approximately 14 diagnostic test kits for the Wampole division 
of Carter-Wallace.  The test kits, which had previously been manufactured by 
Carter-Wallace, are used to aid in the diagnosis of diseases such as 
rheumatoid arthritis, mononucleosis, strep throat and rubella, as well as to 
detect pregnancy. Carter-Wallace has agreed to purchase its requirements for 
these test kits from the Company during the term of the Agreement, subject 
to the Company maintaining certain quality standards.  The test kits are 
sold by Carter-Wallace to clinical laboratories and physicians' office 
laboratories both domestically and abroad.  This contract expires in 
December 1999.  The Company is currently negotiating an extension of the 
Carter-Wallace Agreement. 

      The Company markets and sells certain of its products through third 
parties, including Olympus America, Inc. ("Olympus"), an affiliate of 
Olympus Optical Co., Ltd. of Japan, Sigma Diagnostics, Inc. ("Sigma"), a 
subsidiary of Sigma-Aldrich Corp and Boehringer Mannheim, GmbH ("Boehringer" 
or "BM").  See "Business - Distribution and Marketing" 

      The Company owns a 51% interest in HDC, a Brazilian limited liability 
company.  HDC distributes most of the Company's products throughout South 
America.  HDC also completes light assembly of certain of the Company's 
products.  Unless the context otherwise requires, the term "Company" 
includes HDC, RAI, CPI and the Virgo Acquisition.

Recent Developments

      Analyst Purchase

      On September 1, 1998 the Company purchased certain assets from Dade 
related to a product line sold under the registered tradename Analyst.  The 
Analyst product line consists of both the Analyst bench top clinical 
chemistry system and all the related consumables which are used in that 
bench top system.  The assets included accounts receivable, inventory, 
equipment, and certain intellectual property.  The Company agreed to assume 
certain of Dade's liabilities including accounts payable, service contracts 
and warranty obligations.  Pursuant to the purchase and the related 
agreements, Dade will continue to manufacture the products under a separate 
manufacturing agreement for a period of up to thirty-six months while the 
Company transitions the manufacturing operations to its facilities located 
in Columbia, Maryland and San Diego, California.  With 90 days written 
notice to Dade, this agreement may be terminated without cause by the 
Company.  The Company intends to have the instruments manufactured by Dade 
or some other suitable third party in the foreseeable future.

      Under the purchase agreement, at the closing, the Company paid 
$3,500,000 in cash and issued a subordinated non-interest bearing promissory 
note to Dade (the "Note") in the amount of $1,250,000.  The Company agrees 
to pay Dade in full on or before September 1, 2000.  The Note and the 
purchase price are subject to adjustment due to changes in working capital 
transferred at the close of the purchase agreement.  The Company has also 
agreed to pay Dade a royalty on the sale of certain consumables for use with 
the Analyst instrument. 

      The Company financed the acquisition using $3,500,000 in proceeds from 
a $5,000,000 revolving credit line from BankBoston, N.A., which is secured 
by all the assets of the Company and its subsidiaries.

      The Analyst system uses a patent protected rotor based technology that 
is currently capable of producing results of up to 14 different clinical 
chemistry tests in under 10 minutes.  The rotor contains dry prepackaged 
reagents in tablet form, which include tests such as cholesterol, 
triglycerides, glucose and total protein.  The Analyst is sold in point of 
care settings such as physician office laboratories and veterinary office 
laboratories.  

      R&D Antibodies Joint Venture

      In December, 1997, the Company entered into a Joint Venture with R & D 
Antibodies ("R & D"), a private biotechnology company located in California.  
R & D owns proprietary antibodies to the inducible form of the enzyme, 
nitric oxide synthase ("iNOS").  Using these antibodies, the joint venture 
is developing an early detection assay for signaling the onset of sepsis and 
septicemia primarily in patients who are in non-cardiac intensive care units 
throughout the world.  The Company estimates a minimum of 300,000 deaths 
occur in the United States due to this disease annually. 

      Distribution Agreements

      During the fiscal year ended September 30, 1998 the Company entered 
into several distribution agreements for distribution of its products in 
Greece, Italy, Korea, Mexico, the United Kingdom and the United States.  
Certain of these agreements include minimum purchases, however the Company 
cannot insure that these minimum purchase volumes will be attained.

Technology

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

      The Company relies upon proprietary or patent-protected technologies 
in the manufacture of its kits.  These technologies include a lyophilization 
(freeze drying) technique which substantially extends the shelf life of the 
Company's hemagglutination assays, and proprietary methods to prepare 
antigens for its ELISA assays. The Company has recently acquired an 
exclusive worldwide license to a patent protected rotor based technology for 
use in the Analyst.

      ELISA

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

      Immunofluorescence

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

      Clinical Chemistries

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

      Hemaggglutination

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

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

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

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

      Automated Clinical Chemistry  Instrument System

      The Analyst is a bench top centrifugal clinical chemistry analyzer.  
The Analyst uses as a consumable a small rotor which contains dry 
prepackaged reagents.  The Analyst spins the rotor mixing the patient sample 
with the dry reagents producing a result in under ten minutes.  Five types 
of rotors providing a variety of clinical chemistry tests, all cleared for 
marketing by the FDA, are currently being marketed and sold by the Company 
and certain distributors.  The Analyst instrument has been designated by the 
FDA as moderately complex, and is therefore suitable for the point of care, 
physician and veterinary office laboratory markets.

      Acute Phase Reactants and Apolipoproteins

      The Company has developed a new application for its ELISA technology 
to detect cardiovascular risk factors (apolipoproteins) and inflammatory 
signals (acute phase reactants), the latter of which are present in a 
patient's blood prior to the clinical manifestation of infection or 
inflammation.  If successful, these technologies could lead to earlier 
detection and prevention of cardiovascular disease, the imminent rejection 
of transplanted organs, or the onset of infections, than is possible with 
techniques now commercially available.  Such earlier detection could enable 
physicians to better plan appropriate treatment of patients with these 
conditions.  The Company currently markets two test kits to detect 
inflammatory signals.  Product sales for these tests were approximately 
$203,000, and $224,000 in fiscal 1998 and 1997, respectively.

Current Products 

      ELISA Assays

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

      SLE (lupus)                          polymyositis
      mixed connective tissue disease      dermatomyositis
      Sjogren's syndrome                   connective tissue diseases
      scleroderma (systemic sclerosis)     Primary Biliary Cirrhosis
      cytomegalovirus infections           Chagas' disease
      Rheumatoid arthritis                 Wegener's disease

      Certain of the Company's ELISA tests are also used to monitor the 
acute phase response to infection and inflammation in diseases such as lupus 
and rheumatoid arthritis.  Several of the Company's ELISA tests are now 
available in both lyophilized and all liquid formats.

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

      Immunofluorescence ("IFA") Products

      The Company's immunofluorescence products consist primarily of 
diagnostic assays for infectious 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. 

      The Company'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

      Hemagglutination Assays

      The Company believes that it manufactures and markets the only 
commercially available hemagglutination kits which test for antibodies to 
antigens present in the nucleus of a cell ("extractable nuclear antigens," 
or "ENAs") which are markers of certain autoimmune diseases.  Each of the 
Company's hemagglutination assays is based on the Company's proprietary 
technique to lyophilize, or "freeze dry," the RBCs which form the central 
component of a hemagglutination assay. The Company's proprietary 
lyophilization technique for the preservation of RBCs permits the production 
of standardized, easy-to-use and accurate hemagglutination tests with an 
extended shelf life, 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, the Company uses a proprietary 
formula to combine antigens and other reagents with RBCs in a manner that 
allows for standard, sensitive and specific agglutination reactions. Results 
from the Company's test kits are generally available within two hours.  The 
Company's hemagglutination test kits aid in the diagnosis of the following 
diseases:

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

      RAI Products

      The Company'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 analysis systems.  Many of the RAICHEM(R) 
assays are used in profiling general health conditions and as specific 
indications of possible disease states.   The most widely recognized general 
chemistry tests made by the Company include those for blood levels of 
glucose, cholesterol, triglycerides, uric acid, urea nitrogen and total 
protein.  In all, more than 60 of the Company's clinical chemistry products 
have been cleared by the FDA for sale in the United States.  This includes a 
line of serum protein immuno assay products, ("SPIA" products).  SPIA 
products are liquid reagents which measure levels of sub-particles of 
protein in serum.  These tests are used to diagnose various types of 
infectious diseases and cardiac risk factors and autoimmune diseases.

      CPI Products

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

      Analyst System Products

      The Company currently markets five rotor types for use on its Analyst 
clinical chemistry analyzer.  These include two general chemistry rotors, a 
glucose test, a lipid screen test and a theophylline test.  All five tests 
are cleared for marketing by the FDA.

South American Activities

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

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

      The office in Sao Paulo is presently staffed by five full-time 
salespeople administrators who receive and process orders, and four people 
in production, shipping and technical support.  In addition, Dr. de 
Oliveira, the Company's Vice President of Research and Development, spends 
time in Brazil attending to business of the Company. In fiscal 1998, and 
1997 the Company derived product sales through HDC of approximately 
$1,473,000, and $1,255,000 respectively.  See "Business - Facilities." 

      In August, 1997, the Company entered into a distribution agreement 
with Donner Systems to distribute the Company's clinical chemistry product 
line in Brazil.  Donner has agreed to a minimum purchase amount of $2 
million over the term of the three year agreement once the Company's 
products have been registered for sale in Brazil.  Product registration was 
completed during fiscal 1998, however, Donner has failed to attain its 
minimum purchase requirements.

Distribution and Marketing

      General

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

      In June, 1998 the Company hired a six person outside sales force to 
assist in the sales effort in the United States and Europe.  This sales 
force, operating in specified regions within the United States and Europe 
will allow the Company to focus on selling products directly to customers as 
well as increasing marketing and selling efforts of distributors.

      Since 1989 the Company has been the exclusive provider of test kits to 
detect CMV antibodies for use with the Olympus' PK Series Pre-Transfusion 
instruments, the world's most widely used automated blood-typing instruments 
in blood banks and large commercial laboratories.  Sales of CMV assays to 
Olympus were approximately $1,313,000, and $1,057,000 during fiscal 1998, 
and 1997, respectively.  Olympus and the Company did not renew this 
exclusive agreement when it terminated in March, 1998.  However, Olympus has 
continued to purchase these products from the Company since the termination 
of the contract.  The Company cannot predict whether these purchases will 
continue and when Olympus will stop purchasing these products from the 
Company.

      The Company also manufactures products on a private label basis for 
Sigma, Boehringer, Hoffman La Roche, and Carter-Wallace pursuant to supply 
agreements.  Some of these agreements provide for minimum purchases; 
however, the Company cannot predict the level of revenues it will derive 
from these agreements.

      Carter-Wallace accounted for approximately 10% and 14% of the 
Company's revenue for the fiscal years ended September 30, 1998 and 1997, 
respectively.   Although the Company expects that its relationship with 
Carter Wallace will continue, if it were to cease doing business with the 
Company it would have a material adverse effect on the Company's business. 

      The Company's South American Distribution and Marketing activities are 
described in the section entitled "Business: South American Activities."

Products Under Development

      The Company is presently developing new products in areas described 
below. The Company spent a total of approximately $1,073,000, and $1,072,000 
on Company-sponsored research and development for the fiscal years ended 
September 30, 1998, and 1997, respectively. The Company spent a total of 
approximately $ 0, and $6,000 on externally-sponsored research and 
development for the years ended September 30, 1998, and 1997, respectively.

The Company's Projects Include The Following:

      Autoimmune Diseases

      The Company intends to continue its development of products to aid in 
the diagnosis of autoimmune diseases. ELISA kits for the detection of 
antibodies associated with Beta 2 glycoprotein are currently under 
development. These will be marketed with our recently approved anti-
cardiolipin kits. In addition, an ELISA Screen assay to detect total 
antinuclear antibodies (ANA) is being developed.  The Company believes that 
it will have commercially available assays for these purposes in fiscal 
1999, subject to obtaining appropriate regulatory clearances. 

      Acute Phase Reactants 

      Working together with the Framingham Heart Study, the Company's CRP 
ELISA kit has been shown to be an effective predictor of cardiovascular 
disease. These results are preliminary and several studies are planned  in 
the coming year to validate the initial findings.

      Infectious Diseases

      The Company continues to develop additional assays to aid in the 
diagnosis of infectious diseases.  The Company recently completed the 
development of products known as  a "ToRCH panel" which include assays for 
toxoplasmosis, rubella, CMV, and herpes. Several of these products are being 
evaluated for submission to the FDA for clearance.

      CPI has begun development of the viral lysates used in the Company's 
infectious disease products, including HIV herpes and CMV.  It is expected 
that more of these viral lysates will be developed during the coming year.

      Clinical Chemistry Reagents

      The Company continues to develop additional assays and reagents to 
fill in its clinical chemistry reagent product line sold under the RAICHEM 
label.  Almost all of the powdered clinical chemistry assays are now 
available in liquid format, making RAICHEM one of the most complete clinical 
chemistry lines offered worldwide.  Continuing efforts are directed at 
increasing the line of Serum Protein Immunoassays (SPIAs), especially to 
modify them for use in the Analyst (see below)  Development of a kit to 
measure blood levels of ferritin is almost complete and plans to produce 
several other assays are in place.

      Analyst Instrument System

      Studies have begun to modify the contents (test panel) of the human 
Chem 14 rotor to ease the reimbursement procedures and to make the product 
more informative for the doctor and the patient. These modifications should 
be accomplished in the coming calendar year. Relatively few changes need to 
be made for this to happen. As mentioned above, we will explore the 
possibility of expanding the rotor technology to immunoassays of serum 
proteins, therapeutic drug monitoring and a thyroid panel.

      New Analyst Instrument

      The Analyst instrument itself is a rugged and highly reliable unit 
that needs only to be updated rather than overhauled. New features to be 
included are increased memory capacity, user-friendly calibration technology 
and smaller instrument footprint. The Company has entered into serious 
discussion with key instrument manufacturers and it believes that 
development and design of a new more robust Analyst will be available in the 
second quarter of Fiscal Year 2000. 

      Vet Rotor

      The Company together with the personnel at Dade, have developed a 
prototype rotor for the veterinary market. It is denoted as the Vet 16 rotor 
and it is expected to be introduced to the market in the second quarter of 
Fiscal Year 1999. At present, it is being tested in the field at several vet 
sites. Five new or modified assays were added to the Chem 14 rotor to 
accomplish this feat. The staff at RAICHEM made the raw material; It was 
modified and processed at Dade. 

Relationship with Boston University

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

      License Agreements

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

      In July 1994, the Company entered into a second license agreement with 
the University under which the Company obtained the exclusive right to use 
additional patented and patent-pending technology of the University to 
manufacture and market certain products.  The royalties due under the terms 
of the agreement are the same as the B.U. License Agreement and will be 
applied to a license fee of $15,000.  No royalties were paid in the years 
ended September 30, 1998 or 1997 and no amounts were accrued for royalties 
at September 30, 1998 or 1997.  The agreement terminates upon the 
termination of the patents.

      Manufacturing and Sources of Supply

      The Company manufactures its hemagglutination and ELISA test kits 
primarily at its facility in Waltham, Massachusetts, and its products based 
on immunofluorescence technology at its facility in Columbia, Maryland.  The 
Company's clinical chemistry products are produced at the Company's facility 
in San Diego, California and the raw material and research lines are 
produced in Buffalo, New York.  Presently, the Analyst and related 
consumables are manufactured or purchased by Dade in Glasgow, Delaware and 
Atlanta, Georgia.  The Company purchases RBC(s) and many of the antigens and 
other reagents used in the kits from outside vendors.  Some reagents used in 
the Company's test kits are manufactured at the Company's facilities. The 
Company uses lyophilization equipment to preserve sensitized RBCs for its 
hemagglutination test kits.

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

Government Regulation

      The Company's manufacturing, distribution, and marketing of diagnostic 
test kits are subject to a number of both domestic and international 
regulatory controls. In the United States, the Company's production and 
marketing activities are subject to regulation by the United States Food and 
Drug Administration ("FDA"), under the authority of the Federal Food Drug, 
and Cosmetic Act, as amended by the Medical Device Amendments Act of 1976, 
The Safe Medical Devices Act of 1990, and The Medical Device Amendments of 
1992 and the FDA Modernization Act of 1997.   

      These regulations require that the Company 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 process ("PMA").  When a 510(k) process is used the Company is 
required to demonstrate that the product is "substantially equivalent" to 
another product in commercial distribution.  The Company cannot proceed with 
sales of its diagnostic products until it receives clearance from the FDA.  
Currently, the majority of products that are reviewed by the 510(k) process 
are cleared within 90 days.

      In certain cases the Company must follow the PMA process which 
involves a lengthier and more burdensome process.  

      The Company is required to register with the FDA as a device 
manufacturer and list its devices.  As such, the Company is subject to 
inspection on a routine basis for compliance with the FDA's Quality System 
Regulations (QSR). These regulations require that the Company manufacture 
its products and maintain its documents in a prescribed manner with respect 
to manufacturing, testing, control, and distribution activities.  In 
addition, the Company is required to comply with various FDA requirements 
for labeling, pursuant to the Medical Device Reporting Act regulations.  
Finally, the FDA prohibits an approved device from being marketed for 
unapproved applications.   The Company believes it is in conformity with all 
such regulations.

      The regulatory controls being imposed upon the Company with respect to 
the international distribution, and marketing of in vitro diagnostic devices 
are increasing.  Specifically, member nations of the European Community are 
developing a standardized quality system similar to QSR called EN 29000 that 
is anticipated to be effective no sooner than 1998 and will allow companies 
a three year period to conform to the directive.  The Company will be 
required to conform to the EN 29000 regulations for any product sold in the 
European Community.   The European Community has adopted the IVD Directive.  
All In-Vitro Devices ("IVDs") must bear the CE Marking of Conformity by 
2005.  Instruments must bear the CE Marking by June, 1998.  The Company 
expects to be able to conform to these regulations within the required time 
frame.   The Company is testing the Analyst to insure that it complies with 
these regulations.

Competition

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

Product Liability

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

Patents and Proprietary Rights

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

Royalty Obligations

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

Employees

      As of September 30, 1998, the Company had 114 full-time employees, of 
which four are executive officers, 30 are employed in sales, marketing, 
general and administrative activities and 80 are involved in production and 
research and development.  

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

Item 2. Description of Property.

      The Company maintains its principal executive offices, laboratory and 
production operations in Waltham, Massachusetts in two adjacent buildings; 
one a 4,000 sq. ft. facility which houses the Company's research and 
development laboratories, and the other a 15,000 sq. ft. facility which 
accommodates the laboratory and production operations and the executive 
offices of the Company. The Company pays rent in the amount of $133,500 per 
annum for the two facilities pursuant to the terms of that lease which ends 
May 30, 2002. The Company also leases 29,000 square feet in a production 
facility in Columbia, Maryland where it manufactures the immunofluorescence 
products.  Under the Columbia lease, which extends through June 30, 2000, 
the Company pays $108,156 per annum in rent. The Company also leases 20,100 
square feet in San Diego, California, where it manufactures the RAICHEM 
products.  Under the San Diego lease, which extends through September 30, 
2002, the Company pays approximately $201,000 per annum.  In addition, the 
Company leases a 1,900 square foot warehouse facility near its production 
site for which it pays $13,080 per annum on an annual lease which may be 
renewed each April 1.  As part of the purchase of substantially all the 
assets of 872 Main Street Corporation in November, 1996, the Company 
acquired the land and building located at 872 Main Street in Buffalo, New 
York.  CPI operates out of this facility which consists of approximately 
15,000 square feet of space.  The Company believes that its facilities are 
adequate for its present and foreseeable needs. 

      The Company's 51%-owned subsidiary leases approximately 4,500 square 
feet in Sao Paulo, Brazil pursuant to a lease which expires in September 30, 
1999. This subsidiary pays rent in an amount of approximately $5,500 per 
month for this space. The Company believes that its facilities in Sao Paulo 
are adequate for its present and foreseeable needs.

Item 3. Legal Proceedings.

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

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

      None.

                                   PART II

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

      The Company's Common Stock has been traded on the over-the-counter 
market through the National Association of Securities Dealers Automated 
Quotation System ("NASDAQ") since February 4, 1993.  The Company's Common 
Stock is also traded on the Boston Stock Exchange.  On December 14, 1998, 
the closing bid and ask price for the Common Stock as reported by NASDAQ 
were $0.94 and $0.84 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 NASDAQ during 
Fiscal 1997 and 1998.  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>
1997
First Fiscal Quarter                               $2.94            $2.12
Second Fiscal Quarter                              $2.69            $2.06
Third Fiscal Quarter                               $2.38            $1.44
Fourth Fiscal Quarter                              $2.19            $1.75
1998
First Fiscal Quarter                               $2.47            $1.69
Second Fiscal Quarter                              $2.13            $1.16
Third Fiscal Quarter                               $1.56            $1.16
Fourth Fiscal Quarter                              $1.22            $0.66
1999
First Quarter (through December 14, 1998           $1.25            $0.63
</TABLE>

      As of December 14, 1998, there were approximately 170 holders of 
record of the Company's Common Stock.

      For the periods indicated, the following table sets for the range of 
high and low bid prices for the Common Stock Warrants as reported by NASDAQ 
during Fiscal 1997 and 1998.  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>
1997
First Fiscal Quarter                               $1.63            $0.63
Second Fiscal Quarter                              $1.25            $0.63
Third Fiscal Quarter                               $1.06            $0.31
Fourth Fiscal Quarter                              $0.97            $0.38
1998
First Fiscal Quarter                               $0.69            $0.38
Second Fiscal Quarter                              $0.50            $0.13
Third Fiscal Quarter                               $0.41            $0.16
Fourth Fiscal Quarter                              $0.38            $0.09
1999
First Quarter (through December 14 , 1998)         $0.16            $0.09
</TABLE>

      As of December 14, 1998, there were approximately 60 holders of record 
of the Company's Common Stock Warrants.

Dividends

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

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

      This section contains certain forward-looking statements that are 
subject to risks and uncertainties  including but not limited to those 
discussed in the section entitled "Risk Factors" in the Prospectus contained 
in the Company's Registration Statement on Form S-3, File Nos. 333-6147 and 
33-80009 (which section is hereby incorporated by reference herein).  These 
risks and uncertainties could cause the Company's actual results in future 
periods to differ materially from its historical results, and from any 
opinions or statements expressed in forward-looking statements.  Such 
forward-looking statements speak only as of the date of this report, and the 
Company cautions readers not to place undue reliance on these statements.

Overview

      Historically, the Company has concentrated its efforts on developing, 
manufacturing and marketing medical diagnostic test kits used to aid in the 
diagnosis of certain diseases and the profiling of general health 
conditions.  Since the fiscal year ending 1995, the Company has also 
concentrated its expansion efforts on synergistic acquisitions of companies, 
product lines and assets.   The Company presently has approximately 135 
different test kits available for general sale, approximately 125 of which 
have received FDA clearance for sale in the United States. 

Results of Operations

      Fiscal Year Ended September 30, 1998 Compared
      to Fiscal Year Ended September 30, 1997

      Revenues decreased to approximately $12,327,000 from approximately 
$12,991,000 (5%), primarily as a result of an approximate $634,000 decrease 
in contract manufacturing sales to Carter Wallace.  Hemagen is not involved 
in the sale of the Carter Wallace products to the end user and therefore 
does not control the sales volume of these products.  Sales of Hemagen/Virgo 
products increased approximately 9% during the year.  This was offset by 
small decreases in sales at the RAI and CPI subsidiaries.  The CPI decrease 
was the result of regulatory issues with one product.  A customer had been 
selling the product in the United States without properly licensing this 
product  with the FDA.  RAICHEM sales declined due to a decrease in direct 
sales within the United States.  All the product sale decreases were 
slightly offset by sales in September, 1998 relating to the Analyst 
business.  The Company is confident that the introduction of a sales force 
within the United States will reverse both declines in the coming year.

      Cost of product sales decreased to approximately $7,299,000 from 
approximately $7,598,000 (4%) due to the decrease in sales. Cost of product 
sales as a percentage of sales were approximately unchanged  at 59%.  
Reductions in the cost of materials resulted from the lower sales and an 
increase in the amount of raw materials produced by the Company were 
partially offset by increases in facilities and depreciation expenses.

      Research and development expenses decreased to approximately 
$1,073,000 from approximately $1,078,000 (1%), primarily due to lower costs 
at RAI resulted from the consolidation of certain research and development 
expenses at the corporate offices.  This was partially offset by higher 
personnel costs and higher equipment costs at the corporate offices.  The 
Company is currently developing a wide variety of products which it believes 
will enhance all of the Company's product lines.  (See: "Business - Products 
Under Development").  The Company expects its spending in Research and 
Development to increase during the coming year as it brings more of these 
products to market.

      Selling, general and administrative expenses increased to 
approximately $3,855,000 from approximately $3,808,000 (1%), primarily due 
to the hiring of a national sales force and increased advertising expenses. 
This was partially offset by lower costs at RAI that are the result of 
consolidating sales and marketing efforts at the corporate offices.  The 
Company believes the introduction of a sales force and the increased 
advertising efforts will result in increased sales during the fiscal year 
ending September 1999.

      Net other expense decreased to approximately $90,000 from 
approximately $102,000 due to a decrease in interest expense.

      Net income decreased to approximately $10,000 compared to 
approximately $405,000 the previous year primarily due to lower sales and 
increased marketing expenses.

Liquidity and Capital Resources

      The Company has financed its capital expenditures, operating 
requirements and growth primarily from the initial public offering of its 
common stock, a bridge loan, lease financing arrangements, borrowings from 
nonaffiliates and related parties, cash flow from operations, private 
placements completed in September 1995 and March, 1996 and a $5,000,000 line 
of credit provided by BankBoston N.A. which was put in place on September 1, 
1998.

      On September 1, 1998 the Company purchased certain assets from Dade 
related to a product line sold under the tradename Analyst.  The Analyst 
product line consists of both the Analyst bench top clinical chemistry 
system and all the related consumables which are used in that bench top 
system.  The assets included accounts receivable, inventory, equipment, and 
certain intellectual property.  The Company agreed to assume certain of 
Dade's liabilities including accounts payable, service contracts and 
warranty obligations.  Pursuant to the purchase and the related agreements, 
Dade will continue to manufacture the products under a separate 
manufacturing agreement for a period of up to thirty six months while the 
Company transitions the manufacturing operations to its facilities located 
in Columbia, Maryland and San Diego, California.  The Company intends to 
have the instruments manufactured by Dade or some other suitable third party 
for the foreseeable future.

      Under the purchase agreement, at the closing, the Company paid 
$3,500,000 in cash and issued a non-interest bearing promissory note to Dade 
(the "Note") in the amount of $1,250,000.  The Company agrees to pay Dade in 
full on or before September 1, 2000.  The Note and the purchase price are 
subject to adjustment due to changes in working capital transferred at the 
close of the purchase agreement.  The Company has also agreed to pay Dade a 
royalty on the sale of certain consumables for use with the Analyst 
instrument.

      The Company financed the acquisition using $3,500,000 in proceeds from 
a $5,000,000 revolving credit line from BankBoston, N.A., which is secured 
by all the assets of the Company and its subsidiaries.

      The Analyst system uses a rotor based technology that is currently 
capable of producing results of up to 14 different clinical chemistry tests 
in under ten minutes.  The rotor contains dry prepackaged reagents in tablet 
form.  Included tests include cholesterol, triglycerides, glucose and total 
protein.  The Analyst is sold in point of care settings such as physician 
office laboratories and veterinary office laboratories.  

      On November 1, 1996 the Company, through its wholly owned subsidiary, 
CPI, completed the purchase of substantially all the assets of 872 Main 
Street Corporation (formally Cellular Products, Inc.) for $400,000 in cash 
and a $200,000 promissory note which was paid in full on November 1, 1997.  
CPI is based in Buffalo, New York and is a manufacturer of biotechnology 
materials and assays for research and for the manufacture of clinical 
diagnostic test kits.  Its products are used in the growth and testing of 
retroviruses and as raw materials by manufacturers of clinical diagnostic 
assays.  The product mix includes enzyme oligonucleotide assays, monoclonal 
antibodies, recombinant growth factors, viral lysates and bulk raw 
materials.  CPI presently manufactures a significant amount of material for 
use in the Company's clinical diagnostic tests which has reduced the 
Company's manufacturing costs.

      At September 30, 1998, the Company's working capital was approximately 
$5,446,000 compared to approximately $6,157,000 at September 30, 1997.  This 
decrease was principally due to the draw down of $3,500,000 against the 
Company's $5,000,000 line of credit in relation to the Analyst system 
purchase.

      Inventory balances increased from approximately $3,954,000 on 
September 30, 1997 to approximately $6,212,000 on September 30, 1998 due to 
the purchase of Analyst inventory and purchases of inventory in support of 
an anticipated increase in product sales due to the increase marketing 
efforts.  The Company often purchases large quantities of raw materials due 
to issues of price, quality and availability.  Accounts payable and accrued 
expenses increased from approximately $785,000 to approximately $1,094,000 
primarily due to accrued expenses related to the Analyst purchase.  Accounts 
receivable balances increased from approximately $2,289,000 to approximately 
$3,295,000 due to the purchase of accounts receivable in connection with the 
Analyst purchase.

      Long term obligations including current maturities increased from 
approximately $537,000 on September 30, 1997 to approximately $1,068,000 on 
September 30, 1998.  The $1,068,000 represents the net present value of the 
Note payable to Dade Behring in connection with the Analyst purchase as of 
September 30, 1998.

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

Impact of Inflation

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

New Accounting Pronouncements

      In June 1997, the Financial Accounting Standards Board issued two new 
disclosure standards.   Results of operations and financial positions will 
be unaffected by the implementation of these new standards.

      Statement of Financial Accounting Standards No. 130, "Reporting 
Comprehensive Income", ("SFAS No. 130") establishes standards for reporting 
and display of comprehensive income, its components, and accumulated 
balances.  Comprehensive income is defined to include all changes in equity 
except those resulting from investments by owners and distributions to 
owners.  Among other disclosures, SFAS No. 130 requires that all items that 
are required to be recognized under current accounting standards as 
components of comprehensive income be reported in a financial statement that 
is displayed with the same prominence as other financial statements.

      SFAS No. 131, "Disclosure about Segments of an Enterprise and Related 
Information", which supersedes SFAS No. 14, "Financial Reporting for 
Segments of a Business Enterprise," establishes standards for the way that 
public enterprises report information about operating segments in annual 
financial statements and requires reporting of selected information about 
operating segments in interim financial statements issued to the public.  It 
also establishes standards for disclosures regarding products and services, 
geographic areas, and major customers.  SFAS No. 131 defines operating 
segments as components of an enterprise about which separate financial 
information is available that is evaluated regularly by the chief operating 
decision maker in deciding how to allocate resources and in assessing 
performance.

      Both of these new standards are effective for financial statements for 
the periods beginning after December 15, 1997 and require comparative 
information for earlier years to be restated.   Management does not expect 
implementation of these standards to materially affect future financial 
statements and disclosures.

      In June 1998, the Financial Accounting Standards Board issued SFAS 
133, Accounting for Derivative Instruments and Hedging Activities.  SFAS 133 
requires companies to recognize all derivatives contracts as either assets 
or liabilities in the balance sheet and to measure them at fair value.  If 
certain conditions are met, a derivative may be specifically designated as a 
hedge, the objective of which is to match the timing of gain or loss 
recognition on the hedging derivative with the recognition of (i) the 
changes in the fair value of the hedged asset or liability that are 
attributed to the hedged risk or (ii) the earnings effect of the hedged 
forecasted transaction. For a derivative not designated as a hedging 
instrument, the gain or loss is recognized in income in the period of 
change.  SFAS 133 is effective for all fiscal quarters of fiscal years 
beginning after June 15, 1999.

      Historically, the Company has not entered into derivatives contracts 
either to hedge existing risks or for speculative purposes.  Accordingly, 
the Company does not expect adoption of the new standard on October 1, 1999, 
to affect its financial statements.

Year 2000 Systems

      The Company has undertaken a review concerning the ability of its 
internal information systems, including its internal accounting systems, to 
handle date information and to function appropriately from and after January 
1, 2000, and does not believe that the total cost to address any changes 
required as a result of the so-called "Year 2000 Problem" will be material.  
In addition, the Company has evaluated the impact of possible Year 2000 
problems encountered by its suppliers and customers upon the Company and 
does not believe that any problems would have material effect upon the 
Company.

Item 7.  Financial Statements and Supplementary Data.

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

                                  PART III

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

                                   PART IV

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

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

                                                                   Page
                                                                   ----

Report of Independent Certified Public Accountants -
 BDO Seidman, LLP                                                      F-2
Consolidated Balance Sheets at September 30, 1998
 and 1997                                                       F-3 to F-4
Consolidated Statements of Income for the years
 ended September 30, 1998, and 1997                                    F-5
Consolidated Statements of Stockholders' Equity
 for the years ended September 30, 1998, and 1997                      F-6
Consolidated Statements of Cash Flows for the years
 ended September 30, 1998, and 1997                                    F-7
Notes to Consolidated Financial Statements                     F-8 to F-29

      (a)(2)  Exhibits.

            (i)   The following exhibits, required by Item 601 of Regulation 
                  S-B, are filed herewith:
 
            (ii)  The following exhibits were filed as part of the Company's 
                  Form SB-2 Registration Statement (33-52686-B) declared 
                  effective by the Securities and Exchange Commission (the 
                  "Commission") on February 4, 1993 and are herein 
                  incorporated by reference:

Exhibit No.       Title

  3a              Certificate of Incorporation.

  3b              Bylaws.

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

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

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

  4b              Specimen Stock Certificate.

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

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

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

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

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

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

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

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

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

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

*10k              1992 Stock Option Plan.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 21               List of the Company's Subsidiaries.

-------------------
*     These exhibits relate to a management contract or compensatory plan or 
      arrangement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 23b               Consent of Independent Certified Public Accountants - 
                   Price Waterhouse LLP

            (vii)  The following exhibits were filed as part of the 
                   company's Form 10KSB for the year ending September 30, 
                   1997. 

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

 10ii              Distribution agreement between the Company and Donnor 
                   Com. IND. LTDA

 10jj              Distribution agreement between the Company and Phoenix 
                   Diagnostics, Inc.

      (b)   Reports on Form 8-K.  

            (i)    On September 1,1998, the Company filed form 8-K related 
                   to the purchase of the Analyst business line.


                                 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 18, 1998                By: /s/ Carl Franzblau
                                       Carl Franzblau, President

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

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

/s/Carl Franzblau        President and Chairman of         December 18, 1998
Carl Franzblau, Ph.D.    of the Board of Directors
                         (Principal Executive Officer)

/s/William Franzblau     Chief Financial Officer           December 18, 1998
William Franzblau        (Principal Financial
                         Officer)

/s/Myrna Franzblau       Treasurer (Principal              December 18,1998
Myrna Franzblau          Accounting Officer)

/s/Alan S. Cohen         Director                          December 18, 1998
Alan S. Cohen, M.D.

/s/Lawrence Gilbert      Director                          December 18, 1998
Lawrence Gilbert

                         Director                          December 18, 1998
Ricardo M. de Oliveira, M.D.

/s/Charles W. Smith      Director                          December 18, 1998
Charles W. Smith


                           HEMAGEN DIAGNOSTICS, INC.

                              INDEX TO EXHIBITS

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

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

 27                   Financial Data Schedule


                          Hemagen Diagnostics, Inc.
                              and Subsidiaries

                 Index to Consolidated Financial Statements


Report of Independent Certified Public Accountants                    F-2

Consolidated financial statements:

  Balance sheets                                               F-3 to F-4

  Statements of income                                                F-5

  Statements of stockholders' equity                                  F-6

  Statements of cash flows                                            F-7

  Notes to consolidated financial statements                  F-8 to F-29

<PAGE>  F-1

Report of Independent Certified Public Accountants

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, 1998 and 1997, and 
the related consolidated statements of income, 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 generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Hemagen 
Diagnostics, Inc. and subsidiaries at September 30, 1998 and 1997, and the 
results of their operations and their cash flows for the years then ended, 
in conformity with generally accepted accounting principles.


                                       BDO Seidman, LLP

Boston, Massachusetts
December 4, 1998

<PAGE>  F-2

                          Hemagen Diagnostics, Inc.
                              and Subsidiaries

                         Consolidated Balance Sheets

<TABLE>
<CAPTION>
September 30,                                              1998             1997
--------------------------------------------------------------------------------

<S>                                                 <C>              <C>
Assets

Current:
  Cash and cash equivalents                         $   412,193      $   294,086
  Short-term investments                                      -          730,827
  Accounts receivable, less allowance for
   doubtful accounts of $477,000 and $55,500
   at September 30, 1998 and 1997, respectively       3,294,598        2,288,793
  Inventories                                         6,212,254        3,953,601
  Prepaid expenses and other current assets             273,909          221,646
--------------------------------------------------------------------------------

      Total current assets                           10,192,954        7,488,953

Property and equipment, net of accumulated
 depreciation and amortization                        4,367,196        2,545,470

Other assets                                          1,403,486        1,512,227
--------------------------------------------------------------------------------

                                                    $15,963,636      $11,546,650
================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>  F-3

                          Hemagen Diagnostics, Inc.
                              and Subsidiaries

                         Consolidated Balance Sheets
                                 (Continued)

<TABLE>
<CAPTION>
September 30,                                              1998             1997
--------------------------------------------------------------------------------

<S>                                                 <C>              <C>
Liabilities and Stockholders' Equity

Current liabilities:
  Notes payable:
    Bank                                            $ 3,500,000      $         -
    Other                                                     -          198,983
  Accounts payable and accrued expenses               1,093,532          785,135
  Deferred revenue                                      152,929                -
  Current maturities of long-term debt                        -          347,388
--------------------------------------------------------------------------------

      Total current liabilities                       4,746,461        1,331,506

Subordinated note payable, net of unamortized
 discount of $181,637                                 1,068,363                -

Long-term debt, less current maturities                       -          189,281
--------------------------------------------------------------------------------

      Total liabilities                               5,814,824        1,520,787
--------------------------------------------------------------------------------

Minority interest in consolidated subsidiary                  -                -

Commitments and contingencies (Note 17)                       -                -

Stockholders' equity:
  Preferred stock, $.01 par value - 1,000,000
   shares authorized; none issued                             -                -
  Common stock, $.01 par value - 30,000,000 shares
   authorized; 7,851,890 and 7,776,890 shares
   issued and outstanding at September 30, 1998
   and 1997, respectively                                78,519           77,769
  Additional paid-in capital                         13,440,947       13,329,197
  Accumulated deficit                                (3,364,654)      (3,375,103)
--------------------------------------------------------------------------------

                                                     10,154,812       10,031,863

  Less - receivable from stockholders                    (6,000)          (6,000)
--------------------------------------------------------------------------------

      Total stockholders' equity                     10,148,812       10,025,863
--------------------------------------------------------------------------------

                                                    $15,963,636      $11,546,650
================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>  F-4

                          Hemagen Diagnostics, Inc.
                              and Subsidiaries

                      Consolidated Statements of Income

<TABLE>
<CAPTION>
Years ended September 30,                            1998             1997
--------------------------------------------------------------------------

<S>                                           <C>              <C>
Revenue:
  Product sales                               $12,327,352      $12,971,102
  Research and development contracts                    -           20,000
--------------------------------------------------------------------------

                                               12,327,352       12,991,102
--------------------------------------------------------------------------

Cost and expenses:
  Cost of product sales                         7,298,563        7,597,981
  Cost of research and development contracts            -            5,928
  Research and development                      1,072,696        1,072,188
  Selling, general and administrative           3,855,215        3,808,000
--------------------------------------------------------------------------

                                               12,226,474       12,484,097
--------------------------------------------------------------------------

      Operating income                            100,878          507,005
--------------------------------------------------------------------------

Other income (expenses):
  Interest income                                  64,258           63,727
  Interest expense                               (102,660)        (131,806)
  Foreign exchange loss                           (68,511)         (18,306)
  Other income (expense)                           16,484          (15,491)
--------------------------------------------------------------------------

                                                  (90,429)        (101,876)
--------------------------------------------------------------------------

Net income                                    $    10,449      $   405,129
==========================================================================

Net income per share of common stock:
  Basic                                       $         -      $       .05
  Diluted                                     $         -      $       .05
==========================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>  F-5

                          Hemagen Diagnostics, Inc.
                              and Subsidiaries

               Consolidated Statements of Stockholders' Equity

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

<S>                                             <C>          <C>        <C>            <C>             <C>         <C>
Balance at September 30, 1996                   7,620,890    $76,209    $13,132,757    $(3,780,232)    $(6,000)    $ 9,422,734

  Issuance of common stock to employees
   under stock option plan                         56,000        560         97,440              -           -          98,000
														       
  Exercise of common stock purchase warrants      100,000      1,000         99,000              -           -         100,000

  Net income                                            -          -              -        405,129           -         405,129
------------------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1997                   7,776,890     77,769     13,329,197     (3,375,103)     (6,000)     10,025,863

  Exercise of common stock purchase warrants       75,000        750        111,750              -           -         112,500

  Net income                                            -          -              -         10,449           -          10,449
------------------------------------------------------------------------------------------------------------------------------

Balance at September 30, 1998                   7,851,890    $78,519    $13,440,947    $(3,364,654)    $(6,000)    $10,148,812
==============================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>  F-6

                          Hemagen Diagnostics, Inc.
                              and Subsidiaries

                    Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Years ended September 30,                                        1998            1997
-------------------------------------------------------------------------------------

<S>                                                       <C>               <C>
Cash flow from operating activities:
  Net income                                              $    10,449       $ 405,129
  Adjustments to reconcile net income to net cash
   provided (used) by operating activities:
    Gain on sale of property and equipment                    (21,081)              -
    Depreciation and amortization                             886,211         847,296
    Amortization of debt discount                               7,897          11,190
    Foreign exchange loss                                      68,511          18,306
    Changes in operating assets and liabilities, net of
     effects of purchase of Analyst(R) in 1998 and CPI
     in 1997:
      Accounts receivable                                     175,446        (405,345)
      Inventories                                            (684,260)       (319,019)
      Prepaid expenses and other current assets               (53,523)         53,854
      Accounts payable and accrued expenses                    40,155        (771,101)
      Deferred revenue                                        (18,173)              -
-------------------------------------------------------------------------------------
        Net cash provided (used) by operating activities      411,632        (159,690)
-------------------------------------------------------------------------------------

Cash flow from investing activities:
  Payment for acquisitions, net of cash acquired           (3,500,000)       (395,479)
  Proceeds from maturity of short-term investments            730,827         629,422
  Purchases of property and equipment                        (362,105)       (325,082)
  Proceeds from sale of property and equipment                 36,707               -
  Other assets                                                (92,203)         (8,095)
-------------------------------------------------------------------------------------
        Net cash used by investing activities              (3,186,774)        (99,234)
-------------------------------------------------------------------------------------

Cash flows from financing activities:
  Borrowings under revolving line of credit                 3,500,000               -
  Repayments of long-term debt                               (536,669)       (405,876)
  Repayments of notes payable                                (198,983)              -
  Exercise of stock options and warrants                      112,500         198,000
-------------------------------------------------------------------------------------
        Net cash provided (used) by financing
         activities                                         2,876,848        (207,876)
-------------------------------------------------------------------------------------

Effect of exchange rates on cash and cash equivalents          16,401           3,967
-------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents          118,107        (462,833)

Cash and cash equivalents, beginning of year                  294,086         756,919
-------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                    $   412,193       $ 294,086
=====================================================================================

Cash payments of interest                                 $    59,499       $ 147,840
=====================================================================================
</TABLE>

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

See accompanying notes to consolidated financial statements.

<PAGE>  F-7

                          Hemagen Diagnostics, Inc.
                              and Subsidiaries

                 Notes to Consolidated Financial Statements

1.    Nature of Business and Organization

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

2.    Significant Accounting Policies

      Estimates and Assumptions

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

      Principles of Consolidation

The accompanying consolidated financial statements include the accounts of 
the Company and its majority-owned subsidiaries.  The results of Reagents 
Applications, Inc. ("RAI") and Hemagen Diagnostics Commercio, Importaco & 
Exporataco, Ltd. ("HDC") are included for the two years ended September 30, 
1998, and the results of Cellular Products, Inc. ("CPI") are included from 
November 1, 1996, the effective date of the CPI acquisition as described in 
Note 3.  The results of the Analyst(R) product line are included from 
September 1, 1998 the effective date of the acquisition as described in Note 
3.  All significant intercompany balances and transactions have been 
eliminated in consolidation.

The Company has a 51% interest in HDC.  All losses of HDC in excess of the 
minority shareholders' investment have been allocated to the Company.

<PAGE>  F-8

      Foreign Currency Translation

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

      Cash Equivalents and Short-Term Investments

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

Short-term investments are accounted for in accordance with Statement of 
Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for 
Certain Investments in Debt and Equity Securities," which requires that debt 
and marketable equity securities be classified as trading, available-for-
sale, or held-to-maturity.  Available-for-sale securities are reported in 
the balance sheet at fair value with unrealized gains or losses included in 
a separate component of stockholders' equity.  At September 30, 1998, the 
Company held no short-term investments.  Short-term investments held at 
September 30, 1997 consisted of certificates of deposit that matured during 
1998.  These certificates of deposit were classified as available-for-sale 
and recorded at cost at September 30, 1997, which approximated fair value.

      Inventories

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

      Property and Equipment

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

<PAGE>  F-9

      Goodwill

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

      Income Taxes

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

      Revenue Recognition

Revenues from the sale of products are recognized upon product shipment.  
Revenues from contracts to conduct research and development are recognized 
using the percentage-of-completion method.  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 contract billings related to 
research and development and product service contracts not complete at the 
balance sheet date is included in deferred revenue.

<PAGE>  F-10

      Advertising

The Company expenses advertising costs as incurred.  Advertising expense was 
approximately $176,000 and $94,000 in fiscal 1998 and 1997, respectively.

      Statement of Cash Flows - Disclosure of
       Non-Cash Investing Activity

Instruments with a net book value of $114,523 were transferred from fixed 
assets to inventory during 1997.

      Stock Options

Effective October 1, 1996, the Company adopted the provisions of Statement 
of Financial Accounting Standard No. 123 ("SFAS 123"), "Accounting for 
Stock-Based Compensation."  The Company has elected to continue to account 
for stock options at their intrinsic value with disclosure of the effects of 
fair value accounting on net income (loss) and income (loss) per basic and 
diluted share of common stock on a pro forma basis.

      Net Income Per Share of Common Stock

Effective October 1, 1997, the Company adopted Statement of Financial 
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").  SFAS 
No. 128 requires the presentation of both basic and diluted earnings per 
share and replaces previously required standards for computing and 
presenting earnings per share.  Earnings per share amounts for all periods 
have been presented and, where appropriate, restated to conform to the new 
requirements of SFAS No. 128.  Adoption of SFAS No. 128 did not have an 
affect on the Company's earnings per share calculation.

<PAGE>  F-11

      New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued two new 
disclosure standards.  Results of operations and financial position will be 
unaffected by implementation of these new standards.

Statement of Financial Accounting Standards No. 130, "Reporting 
Comprehensive Income," ("SFAS No. 130") establishes standards for reporting 
and display of comprehensive income, its components, and accumulated 
balances.  Comprehensive income is defined to include all changes in equity 
except those resulting from investments by owners and distributions to 
owners.  Among other disclosures, SFAS No. 130 requires that all items that 
are required to be recognized under current accounting standards as 
components of comprehensive income be reported in a financial statement that 
is displayed with the same prominence as other financial statements.

SFAS No. 131, "Disclosure about Segments of an Enterprise and Related 
Information," which supersedes SFAS No. 14, "Financial Reporting for 
Segments of a Business Enterprise," establishes standards for the way that 
public enterprises report information about operating segments in annual 
financial statements and requires reporting of selected information about 
operating segments in interim financial statements issued to the public.  It 
also establishes standards for disclosures regarding products and services, 
geographic areas, and major customers.  SFAS No. 131 defines operating 
segments as components of an enterprise about which separate financial 
information is available that is evaluated regularly by the chief operating 
decision maker in deciding how to allocate resources and in assessing 
performance.

Both of these new standards are effective for financial statements for 
periods beginning after December 15, 1997 and require comparative 
information for earlier years to be restated.  Management does not expect 
implementation of these standards to materially affect future financial 
statements and disclosures.

<PAGE>  F-12

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, 
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").  
SFAS 133 requires companies to recognize all derivatives contracts as either 
assets or liabilities in the balance sheet and to measure them at fair 
value.  If certain conditions are met, a derivative may be specifically 
designated as a hedge the objective of which is to match the timing of gain 
or loss recognition on the hedging derivative with the recognition of (i) 
the changes in the fair value of the hedged asset or liability that are 
attributable to the hedged risk or (ii) the earnings effect of the hedged 
forecasted transaction. For a derivative not designated as a hedging 
instrument, the gain or loss is recognized in income in the period of 
change.  SFAS 133 is effective for all fiscal quarters of fiscal years 
beginning after June 15, 1999.

Historically, the Company has not entered into derivatives contracts either 
to hedge existing risks or for speculative purposes. Accordingly, the 
Company does not expect adoption of the new standard on October 1, 1999 to 
affect its financial statements.

<PAGE>  F-13

3.    Acquisitions

On September 1, 1998, the Company acquired certain assets, primarily 
accounts receivable, inventory, equipment and certain intellectual property, 
and assumed certain liabilities related to the Analyst(R) product line of 
Dade Behring, Inc. ("Dade") for total consideration and related costs of 
$5,007,000.  The purchase price consisted of $3,500,000 in cash and an 
unsecured subordinated promissory note in the amount of $1,250,000 due 
September 1, 2000.  The present value of the note was $1,068,363 at 
September 30, 1998.  The Analyst(R) product line includes the development, 
manufacture and sale of the Analyst(R) instrument together with the rotors 
and reagents for use in in-vitro diagnostics.  Revenues are principally 
derived from the sale of reagents to physicians, veterinarians, and small 
clinics in the United States.  The preliminary purchase price allocation was 
recorded using the purchase method of accounting.

On November 1, 1996, the Company acquired certain assets, primarily 
inventory and fixed assets, and assumed certain liabilities of 872 Main 
Street Corp. (formerly Cellular Products, Inc.) for total consideration and 
related costs of $738,600 and formed a new subsidiary, Cellular Products, 
Inc. ("CPI").  The purchase price consisted of $400,000 in cash and an 
unsecured promissory note to 872 Main Street Corp. in the amount of $200,000 
due November, 1997.  The present value of the note payable, which was fully 
repaid during 1998, was $198,983 at September 30, 1997. The acquisition was 
recorded using the purchase method of accounting.  CPI manufactures 
biotechnology materials and assays for research and for the manufacture of 
clinical diagnostic test kits.

For both the CPI and Analyst(R) product line acquisitions, the excess of the 
fair value of net assets acquired over the purchase price was recorded as a 
reduction of the fixed assets acquired, in accordance with the provisions of 
Accounting Principles Board Opinion No. 16, "Business Combinations."

<PAGE>  F-14

The consolidated statements of operations and cash flows for the year-ended 
September 30, 1998 include the results of operations and cash flows for the 
Analyst(R) product line from September 1, 1998 through September 30, 1998 
and CPI for the entire year.

The consolidated statements of operations and cash flows for the year-ended 
September 30, 1997 include the results of operations and cash flows for CPI 
from November 1, 1996 through September 30, 1997.

The unaudited pro forma combined results of operations of the Company and 
the businesses acquired in fiscal 1998 and 1997 for the years ended 
September 30, 1998 and 1997, assuming that the acquisitions had occurred at 
October 1, 1996 and after giving effect to certain pro forma adjustments are 
as follows:

<TABLE>
<CAPTION>
Years ended September 30,                          1998             1997
------------------------------------------------------------------------

<S>                                         <C>              <C>
Revenue                                     $19,288,000      $22,361,000
Net loss                                    $   (36,000)     $(2,411,000)
Net loss per common share:
  Basic                                     $      (.01)     $      (.31)
  Diluted                                   $      (.01)     $      (.31)
</TABLE>

4.    Related Party Transactions

      Related Parties

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

<PAGE>  F-15

      License Agreements

In March 1992, the Company entered into a license agreement with the 
University under which the Company obtained the exclusive right to use the 
University's patented and patent pending technology to manufacture and 
market certain products.  Under the agreement, the Company is obligated to 
pay an annual royalty of 5% of the first $50,000 of the Company's net sales 
of these products and 10% of net sales of these products in excess of 
$50,000 until the Company has paid the University  a license fee of $10,000 
in total and reimbursed it for certain patent expenses.  All royalties to be 
paid thereafter will equal 5% of the Company's net sales of these products.  
Sales of products using technology obtained under the agreement, but not 
specifically covered under the patent application, and sales which occur if 
no patents are granted, are subject to a 3% royalty for a period of ten 
years.  The Company also agreed to pay the University 27.5% of royalties the 
Company receives if it sublicenses the technology and 25% of the license 
fees resulting from any sublicense agreement.  Sales of these products and 
the related royalties paid by the Company to the University were not 
material in the years ended September 30, 1998 and 1997.  The agreement 
terminates upon the termination of the patents.

In July 1994, the Company entered into a license agreement with the 
University under which the Company obtained the exclusive right to use 
additional patented and patent-pending technology of the University to 
manufacture and market certain products.  The royalties due under the terms 
of the agreement are the same as the initial license agreement and will be 
applied to the license fee of $15,000.  Because there have been no sales of 
these products, no royalties were paid in the years ended September 30, 1998 
and 1997 and no amounts were accrued for royalties at September 30, 1998 or 
1997.  The agreement terminates upon the termination of the patents.

<PAGE>  F-16

5.    Inventories

Inventories consist of the following:

<TABLE>
<CAPTION>
September 30,                                       1998            1997
------------------------------------------------------------------------

<S>                                           <C>             <C>
Raw materials                                 $1,712,873      $1,558,916
Work-in-process                                  640,981         250,612
Finished goods                                 3,858,400       2,144,073
------------------------------------------------------------------------

                                              $6,212,254      $3,953,601
========================================================================
</TABLE>

6.    Property and Equipment

Property and equipment include the following:

<TABLE>
<CAPTION>
September 30,                                       1998            1997
------------------------------------------------------------------------

<S>                                           <C>             <C>
Land                                          $   16,000      $   16,000
Building                                         194,226         172,000
Furniture and equipment                        6,500,018       3,987,991
Leasehold improvements                           583,183         552,352
------------------------------------------------------------------------

                                               7,293,427       4,728,343

Less accumulated depreciation
 and amortization                              2,926,231       2,182,873
------------------------------------------------------------------------

                                              $4,367,196      $2,545,470
========================================================================
</TABLE>

Depreciation and amortization expense relating to property and equipment was 
$753,778 and $701,816 for the years ended September 30, 1998 and 1997, 
respectively.

In fiscal 1998, the Company retired remaining lease obligations amounting to 
$41,613 and acquired the ownership of the assets under these leases.  At 
September 30, 1997, equipment under capital leases and accumulated 
amortization amounted to $119,135 and $83,395, respectively.

<PAGE>  F-17

7.    Other Assets

Other assets consist of the following:

<TABLE>
<CAPTION>
September 30,                                       1998            1997
------------------------------------------------------------------------

<S>                                           <C>             <C>
Goodwill, net of accumulated
 amortization of $272,583 and
 $163,549 for 1998 and 1997,
 respectively                                 $1,362,904      $1,471,938

Other                                             40,582          40,289
------------------------------------------------------------------------

                                              $1,403,486      $1,512,227
========================================================================
</TABLE>

8.    Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses include the following:

<TABLE>
<CAPTION>
September 30,                                       1998            1997
------------------------------------------------------------------------

<S>                                           <C>             <C>
Accounts payable - trade                      $  380,157      $  375,046
Accrued professional fees                         31,742          78,424
Accrued vacation                                  99,115         129,327
Accrued other                                    582,518         202,338
------------------------------------------------------------------------

                                              $1,093,532      $  785,135
========================================================================
</TABLE>

9.    Development and License Agreements

The Company has an agreement with a customer which provides for certain 
minimum purchases by the customer.  During 1997, the customer did not meet 
its minimum purchase requirement but agreed to satisfy the annual amount 
obligated.  During 1998, the terms of this agreement were renegotiated to 
eliminate minimum purchase requirements.  Sales to this customer amounted to 
approximately $27,000 and $203,000 in 1998 and 1997, respectively.

<PAGE>  F-18

Pursuant to the 1998 purchase of the Analyst(R) product line, the Company 
entered into an agreement with Dade under which the Company obtained 
exclusive proprietary rights to certain patents, licenses and technology to 
manufacture, market and sell certain products.  Under the agreement, the 
Company is obligated to make quarterly royalty payments to Dade based on a 
percentage of sales of the defined products through August 31, 2004.  

In addition, the Company entered into a sublicense agreement with Dade 
whereby two license agreements related to certain Analyst(R) products were 
transferred from Dade to the Company.  These license agreements, which 
contain provisions for royalty obligations based on production and net sales 
of certain Analyst(R) products, expire in March, 2000 and May, 2005. Royalty 
expense under the Dade royalty agreement and the Dade sublicense agreement 
was not material in fiscal 1998.

10.   Revolving Line of Credit

In August, 1998, the Company obtained a revolving line of credit with a bank 
for the purpose of purchasing the Analyst(R) product line.  Under the terms 
of the Revolving Credit Agreement (the "Agreement"), the maximum available 
loan commitment, which was $5,000,000 at September 30, 1998, is reduced by 
$187,500 each quarter through August 31, 2001 (the termination date of the 
revolving line of credit).  Outstanding borrowings, which are due upon 
demand, are collateralized by the assets of the Company and its 
subsidiaries.  The Agreement provides for monthly interest payments at 
either the bank's prime lending rate (8% at September 30, 1998) plus .25% or 
the London Interbank Offered Rate ("LIBOR") plus 2.25%.  The Agreement 
requires compliance with various covenants including leverage ratio, debt 
service coverage, minimum profitability and maximum capital expenditures.  
The Company was in compliance with these covenants at September 30, 1998.  
Outstanding borrowings under the revolving line of credit amounted to 
$3,500,000 at September 30, 1998.

<PAGE>  F-19

11.   Long-Term Debt

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

<TABLE>
<CAPTION>
September 30,                                      1998            1997
-----------------------------------------------------------------------

<S>                                            <C>           <C>
Term loan at an effective interest rate
 of approximately 13%, repaid in full
 during 1998                                   $      -      $  495,056

Obligations under capital leases, repaid
 in full during 1998 (Note 6)                         -          41,613
-----------------------------------------------------------------------

Total                                                 -         536,669

Less current portion                                  -         347,388
-----------------------------------------------------------------------

Long-term portion                              $      -      $  189,281
=======================================================================
</TABLE>

12.   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.

<PAGE>  F-20

      Common Stock Purchase Warrants

At September 30, 1998 and 1997, the following warrants were outstanding:

<TABLE>
<CAPTION>
                     September 30, 1998
           -----------------------------------------------
                       Exercise Price      Expiration
             Shares       Per Share           Date
           -----------------------------------------------

             <S>            <C>          <C>
             269,526        $2.75        February 28, 1999
              20,000         3.25        April 29, 1999
              52,000         2.50        December 30, 1999
              35,000         2.00        June 30, 2000
           2,695,255         2.75        February 28, 2001
             269,526         2.75        February 28, 2001
           -----------------------------------------------

Total      3,341,307
           ===============================================
</TABLE>

<TABLE>
<CAPTION>
                     September 30, 1997
           -----------------------------------------------
                       Exercise Price      Expiration
             Shares       Per Share           Date
           -----------------------------------------------

              <S>           <C>          <C>
              10,000        $2.37        October 16, 1997
             270,000         3.00        December 31, 1997
              82,500         1.50        December 31, 1997
              30,000         8.00        February 3, 1998
             269,526         2.75        February 28, 1999
              70,000         3.25        April 29, 1999
              52,000         2.50        December 30, 1999
              35,000         2.00        June 30, 2000
           2,695,255         2.75        February 28, 2001
             269,526         2.75        February 28, 2001
           -----------------------------------------------

Total      3,783,807
           ===============================================
</TABLE>

<PAGE>  F-21

During 1998 and 1997, warrants for the purchase of 75,000 shares and 100,000 
shares at a purchase price of $1.50 per share and $1.00 per share, 
respectively, were exercised.  In fiscal 1998, warrants for the purchase of 
an aggregate of 367,500 shares of common stock at prices ranging from $1.50 
to $8.00 expired.  No warrants expired in fiscal 1997.  No warrants were 
granted in fiscal 1998 or 1997.

In connection with a 1996 private placement offering, the Company issued 
2,695,255 warrants expiring February 28, 2001 and 269,526 Placement Agent 
Warrants.  Each Placement Agent Warrant entitles the holder to purchase 
269,526 units at a price of $2.75 per unit.  Each unit consists of one share 
of the Company's common stock and one common stock Purchase Warrant which 
entitles the holder to purchase one share of the Company's common stock for 
$2.75 per share expiring February 28, 2001.  The Placement Agent Warrants 
expire February 28, 1999.

      Reserved Shares

At September 30, 1998, the Company has reserved 4,280,207 shares of common 
stock for issuance upon the exercise of outstanding common stock options and 
warrants.

      1992 Stock Option Plan

The 1992 Stock Option Plan (the "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 Board 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.  The Company may not grant an employee 
incentive stock options with a fair market value in excess of $100,000 that 
is exercisable during any one calendar year.  The term of incentive stock 
options granted cannot exceed ten years (five years for options granted to 
holders of more than 10% of the voting stock of the Company).  The exercise 
price for incentive stock options granted may not be less than 100% of the 
fair market value per share of the underlying common stock (110% for options 
granted to holders of more than 10% of the voting stock of the Company).  
The Board, at the request of any optionee, may convert incentive stock 
options that have not been exercised at the date of conversion into 
nonqualified stock options.  All options outstanding as of September 30, 
1998 and 1997 were fully vested.

<PAGE>  F-22

Changes in options outstanding under the 1992 Stock Option Plan are 
summarized as follows:

<TABLE>
<CAPTION>
                                                          Weighted-Average
                                               Shares      Exercise Price
---------------------------------------------------------------------------

<S>                                            <C>              <C>
Balance, September 30, 1996                    228,225          $2.54
Granted                                        187,625           2.19
Exercised                                      (56,000)          1.75
Cancelled or expired                           (50,900)          4.78
---------------------------------------------------------------------

Balance, September 30, 1997                    308,950           2.08
Granted                                        312,600           1.26
Exercised                                            -              -
Cancelled or expired                           (54,625)          1.96
---------------------------------------------------------------------

Balance, September 30, 1998                    566,925          $1.64
=====================================================================
</TABLE>

The following table summarizes information about stock options outstanding 
at September 30, 1998:

<TABLE>
<CAPTION>
                                     Options Outstanding
                        -------------------------------------------
                                           Weighted-
                            Number          Average       Weighted-
        Range of        Outstanding at     Remaining       Average
        Exercise         September 30,    Contractual      Exercise
         Prices              1998         Life (years)      Price
      -------------------------------------------------------------

      <S>                   <C>                <C>          <C>
               $5.00          3,000             .2          $5.00
                2.19        175,075            3.2           2.19
                2.00         13,950            2.5           2.00
                1.75         96,500            1.8           1.75
                1.20        278,400            4.5           1.20
      -----------------------------------------------------------

      $1.20 to $5.00        566,925            3.6          $1.64
      ===========================================================
</TABLE>

<PAGE>  F-23

The Company accounts for its stock-based compensation plan using the 
intrinsic value method.  Accordingly, no compensation cost has been 
recognized for its stock option plan.  Had compensation cost for the 
Company's stock option plan been determined based on the fair value at the 
grant dates for awards under the plan consistent with the method of 
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," the Company's net income (loss) and earnings (loss) per 
share would have been adjusted to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
Years ended September 30,                           1998          1997
----------------------------------------------------------------------

<S>                           <C>              <C>            <C>
Net income (loss)             As reported      $  10,449      $405,129
                              Pro forma         (176,286)      181,179

Income (loss) per
 common share:                As reported:
                                Basic                  -           .05
                                Diluted                -           .05
                              Pro forma:
                                Basic               (.02)          .02
                                Diluted             (.02)          .02
</TABLE>

In determining the pro forma amounts above, the Company estimated the fair 
value of each option granted using the Black-Scholes option pricing model 
with the following weighted-average assumptions used for grants in 1998 and 
1997: dividend yield of 0% for both years and expected volatility of 46.1% 
for 1998 and 27.6% for 1997, risk free rates ranging from 5.57% to 5.74% in 
1998 and 5.95% to 6.13% for 1997, and expected lives of 5 years for 1998 and 
1997.  The weighted average fair value of options granted in fiscal 1998 and 
1997 was $0.60 per share and $1.20 per share, respectively.

<PAGE>  F-24

13.   Income Taxes

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

<TABLE>
<CAPTION>
Years ended September 30,                            1998           1997
------------------------------------------------------------------------

<S>                                             <C>             <C>
Domestic                                        $(159,362)      $316,314
Foreign                                           169,811         88,815
------------------------------------------------------------------------

                                                $  10,449        405,129
========================================================================
</TABLE>

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

<TABLE>
<CAPTION>
Years ended September 30,                            1998           1997
------------------------------------------------------------------------

<S>                                             <C>            <C>
Federal tax at statutory rate                   $   3,553      $ 137,744
Operating income offset by
 current tax loss generating
 no current or deferred tax effect                 (3,553)      (137,744)
------------------------------------------------------------------------

                                                $       -      $       -
========================================================================
</TABLE>

<PAGE>  F-25

Deferred tax assets (liabilities) are comprised of the following:

<TABLE>
<CAPTION>
September 30,                                      1998             1997
------------------------------------------------------------------------

<S>                                         <C>              <C>
Net operating loss carryforwards            $ 1,593,000      $ 1,317,000
Amortization of intangible assets                48,000          324,000
Research and development and
 investment tax credit carryforwards            100,000          100,000
Other                                            88,000          134,000
Basis difference of property
 and equipment                                  (51,000)         (51,000)
------------------------------------------------------------------------

Total deferred tax assets                     1,778,000        1,824,000

Deferred tax asset valuation
 allowance                                   (1,778,000)      (1,824,000)
------------------------------------------------------------------------

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

The Company has provided a valuation allowance equal to 100% of the total 
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, 1998, the Company has approximately $3,982,000, $2,334,000 
and $188,000 of federal, state, and foreign net operating losses, 
respectively, available to offset future taxable income, which expire on 
various dates through 2013.  At September 30, 1998, the Company has $100,000 
of federal research and development tax credit carryforwards and $65,000 of 
state research and development and investment tax credit carryforwards 
available to offset future income taxes payable, which expire on various 
dates through 2012.  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.

<PAGE>  F-26

14.   Net Income Per Share of Common Stock

The Company follows Statement of Financial Accounting Standards No. 128 
("SFAS No. 128"), Earnings per Share, issued by the Financial Accounting 
Standards Board.  Under SFAS No. 128, the basic and diluted net earnings per 
share of common stock for the years ended September 30, 1998 and 1997 is 
computed by dividing the net income by the weighted average number of common 
shares outstanding during the period.

The weighted average number of common shares outstanding is summarized as 
follows:

<TABLE>
<CAPTION>
September 30,                                         1998           1997
-------------------------------------------------------------------------

<S>                                              <C>            <C>
Denominator for basic income per share:
  Weighted average common
   shares outstanding                            7,836,520      7,676,561
Potential dilutive common shares
  Stock options                                     69,449         85,586
  Stock warrants                                     3,992         47,891
-------------------------------------------------------------------------

Denominator for diluted income per share         7,909,961      7,810,038
=========================================================================
</TABLE>

The following table summarizes securities that were outstanding as of 
September 30, 1998 and 1997 but not included in the calculation of diluted 
net earnings per share because such shares are antidilutive:

<TABLE>
<CAPTION>
September 30,                                        1998           1997
------------------------------------------------------------------------

<S>                                             <C>            <C>
Stock options                                     192,025         43,000
Stock warrants                                  3,341,307      3,604,307
</TABLE>

<PAGE>  F-27

15.   Significant Sales and Concentration of Credit Risk

In 1998 and 1997, the Company derived revenues from a single customer 
totalling $1,245,000 and $1,880,000, respectively.  The Company derived 
revenues from another customer amounting to $1,447,000 and $1,190,000 for 
the years ended 1998 and 1997, respectively.  Revenues derived from export 
sales amounted to $4,976,000 in 1998 and $4,777,000 in 1997.  Export sales 
to Europe were approximately $2,198,000 in 1998 and $2,591,000 in 1997.  
Export sales to South America were approximately $2,016,000 in 1998 and 
$1,446,000 in 1997.

16.   International

      Operations

The following is a summary of certain selected financial information as of 
September 30, 1998 and 1997 and for the years then ended of the Company's 
51% owned subsidiary, excluding the applicable intercompany balances.

<TABLE>
<CAPTION>
September 30,                                       1998            1997
------------------------------------------------------------------------

<S>                                           <C>             <C>
Assets                                        $  813,117      $  852,578
Liabilities                                   $   79,007      $   82,952
Revenues                                      $1,473,275      $1,255,318
</TABLE>

17.   Commitments

The Company leases certain office and manufacturing facilities under 
noncancelable operating leases expiring through 2002.  In addition, the 
Company leases an office and manufacturing facility under a cancelable 
operating lease which has no future minimum rental commitments.  Future 
minimum lease commitments under the noncancelable operating leases are as 
follows:

<TABLE>
<CAPTION>
                  Years ending September 30,            Total
                  -------------------------------------------

                  <S>                              <C>
                  1999                             $  462,000
                  2000                                433,000
                  2001                                336,000
                  2002                                301,000
                  -------------------------------------------

                                                   $1,532,000
                  ===========================================
</TABLE>

Rent expense approximated $549,000 and $524,000 in 1998 and 1997, 
respectively.

<PAGE>  F-28

      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.  The Company's 
contributions to the Plan amounted to approximately $105,000 and $111,000 in 
fiscal 1998 and 1997, respectively.

      Joint Venture

In December, 1997, the Company entered into a joint venture with a 
biotechnology company which owns certain proprietary biotechnology.  Using 
this technology, the joint venture is planning an early detection assay for 
septic shock.  The agreement provides for the sharing of profit and loss, as 
defined, upon the successful completion of the joint venture project.  
Included in fiscal 1998 expenses are research and development costs of 
approximately $30,000 incurred by the Company on behalf of the joint 
venture.

<PAGE>  F-29