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                       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, 2000
                         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.)

                     9033 Red Branch Rd., Columbia, MD    21045
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (443) 367-5500
                    ----------------------------------------
              (Registrant's telephone number, including area code)

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

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

Common Stock                                   Boston Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: Common Stock
Warrants expiring February 28, 2001 and April 30, 2002.

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

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

         The registrant had revenues of $ 10,995,604 in its most recent fiscal
year. The aggregate market value of the voting stock held by non-affiliates of
the registrant on December 27, 2000 was $ 4,798,831. As of December 29, 2000,
9,597,662 shares Common Stock, 2,595,755 Common Stock Warrants expiring February
28, 2001 and 2,601,800 Common Stock Warrants expiring April 30, 2002 were
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy statement filed with the Commission
for its 2001 Annual Meeting as specified are incorporated by reference in Part
III as specified.



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


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PART I
Item 1.   Business.........................................................................................3
Item 2.   Properties......................................................................................10
Item 3.   Legal Proceedings...............................................................................11
Item 4.   Submission of Matters to a Vote of Security Holders.............................................11

PART II...................................................................................................11
Item 5.   Market For Registrant's Common Equity and Related Stockholder Matters...........................11
Item 6.   Management's Discussion and Analysis of Financial Condition and Results of Operations...........13
Item 7.   Financial Statements and Supplementary Data.....................................................17
Item 8.   Changes in and Disagreements on Accounting and Financial Disclosures............................17

PART III
Item 9.   Directors, Executive Officers, etc..............................................................18
Item 10.  Executive Compensation..........................................................................18
Item 11.  Security Ownership of Certain Beneficial Owners and Management..................................18
Item 12.  Certain Relationships and Related Transactions..................................................18
Item 13.  Exhibits, List and Reports on Form 8-K..........................................................18
</TABLE>


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

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




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ITEM 1.  BUSINESS

         Hemagen Diagnostics, Inc. (Hemagen) 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. Hemagen also develops, manufactures and markets
materials for the manufacture of diagnostic test kits. Hemagen generally focuses
on markets which it believes offer significant growth potential. In addition to
the internal development of products Hemagen has sought to enter growth markets
via the acquisition of synergistic companies, products and assets.

         Hemagen offers approximately 148 test kits that have been cleared by
the FDA for sale in the United States. Hemagen markets and sells its brand name
products worldwide, directly through Hemagen's sales force and through national
and international distributors. Hemagen markets its products in South America
through its majority owned subsidiary, Hemagen Diagnosticos Comercio, Importacao
e Exportacao, Ltd. (HDC), a Brazilian limited liability company. In addition,
Hemagen sells certain of its products on a private-label basis to multinational
distributors of medical diagnostic products.

         Hemagen's most recent acquisition was the September 1, 1998 acquisition
of the Analyst(R) automated clinical chemistry system from Dade Behring, Inc.
This acquisition positioned Hemagen for growth in the physician office
laboratory and veterinary diagnostic markets. The Analyst(R) is a patent
protected, low cost, bench-top clinical chemistry instrument and reagent system.
The Analyst(R) is cleared by the United States Food and Drug Administration for
marketing in the United States. Hemagen signed a separate contract with Dade to
continue to manufacture Analyst(R) reagents for a period of one to three years.

         On March 1, 1996, Hemagen acquired Reagents Applications, Inc. (RAI)
from Kone Holdings, Inc. RAI manufactures and markets a complete line of
clinical chemistry reagents and diagnostic products for in vitro diagnostic use
in hospitals, clinics and laboratories. These products are sold directly under
the RAICHEM(R) label 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(R) 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, Hemagen completed the acquisition of a line of diagnostic
test kits using immunofluorescence, from Schiapparelli Biosystems, Inc. These
acquired assays are sold under the registered trademark VIRGO(R). Hemagen's
VIRGO(R). kits are often used to confirm a diagnosis achieved by other methods.
Under the Hemagen label, Hemagen produces products based primarily on two
diagnostic technologies, hemagglutination and enzyme-linked immunosorbence
called ELISA or EIA. Hemagen owns a proprietary technique for preserving red
blood cells, a key component of Hemagen's hemagglutination assays. This
technology enables Hemagen 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 is more reliable than previously
available hemagglutination assays. The extended shelf life and improvements in
the consistency of these assays substantially eliminates limitations previously
encountered in the use of hemagglutination assays.

         On July 23, 1999, Hemagen sold Cellular Products Inc. to ZeptoMetrix
Corporation for $800,000 in cash. CPI manufactures biotechnology materials and
assays for research and for the manufacture of clinical diagnostic test kits.
Hemagen originally acquired the assets of CPI on November 1, 1996.

         In December 1994, Hemagen entered into a five-year agreement with
Carter-Wallace, Inc. (C-W) to manufacture approximately 14 diagnostic test kits
for the Wampole division of C-W. In December 1999, the C-W agreement was
extended for an additional five-year period ending December 2004. The test kits,
which had previously been manufactured by C-W, are used to aid in the diagnosis
of diseases such as rheumatoid arthritis, mononucleosis, strep throat and
rubella, as well as to detect pregnancy. Hemagen is currently negotiating with
C-W to terminate this contract. Hemagen recorded an estimated loss on the
inventory at September 30, 2000 related to this contract but does not anticipate
any additional costs associated with the termination.

         Hemagen owns a 51% interest in HDC, a Brazilian limited liability
company. HDC distributes several of Hemagen's products throughout South America.
HDC also completes light assembly of certain of Hemagen's products.


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RECENT DEVELOPMENTS

         On September 30, 1999, new management assumed control of Hemagen
following the successful conclusion of the new management's solicitation of
shareholder votes to gain control of the Board of Directors. New management has
instituted an examination of all of Hemagen's operations and has taken the
following actions:

         Consolidated operations and made plans to close the facility located in
         Waltham, Massachusetts in the second quarter of fiscal 2001. All of
         Hemagen's administrative operations and certain production was moved to
         Hemagen's Columbia, Maryland facility during the course of fiscal 2000.
         Certain unprofitable product lines were discontinued. This
         consolidation will result in annual savings in the range of $400,000 to
         $500,000. Approximately $275,000 of the savings will come from reduced
         facility costs, rent and utilities, while the remainder of the savings
         will come from headcount eliminations. The costs of closure are
         estimated to be $879,000, which Hemagen recognized, in the fourth
         quarter of fiscal 2000.

         Established an in-house marketing and sales force to manage Hemagen,
         Virgo and Analyst(R) sales.

         In May 2000, Hemagen raised $6,315,000 in an offering of units
         consisting of 8% Senior Subordinated Secured Convertible Notes, Common
         Stock and Warrants. Proceeds of this offering were used to pay off the
         revolving line of credit and to provide working capital to Hemagen.

         On November 8, 2000, Hemagen signed an agreement with Dade Behring,
         Inc., that would allow Hemagen to finance the remainder of the
         Analyst(R) purchase price over two years and continue to purchase the
         Analyst(R) tablets from Dade Behring for the next twelve to eighteen
         months.

         Reduced headcount by approximately 34%, from 98 employees as of
         September 30, 1999 to 65 as of September 30, 2000.



TECHNOLOGY

         The presence and concentration of certain antibodies in the blood of an
individual can assist physicians in the diagnosis of certain diseases. Hemagen's
assays are in vitro (outside of a patient's body) diagnostic tests that are used
to measure specific substances, either antigens or antibodies, in blood or other
body fluids. An antigen is a substance that 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. Hemagen's hemagglutination, ELISA and
immunofluorescence assays are three examples of such an amplification. Hemagen's
blood chemistry and Analyst system assays are used to aid the monitoring and
measurement of health profiles, such as cholesterol, blood urea nitrogen,
triglycerides, glucose and uric acid.

         Hemagen relies upon proprietary technologies in the manufacture of its
kits. These technologies include a lyophilization (freeze drying) technique
which substantially extends the shelf life of Hemagen's hemagglutination assays,
and proprietary methods to prepare antigens for its ELISA assays. Hemagen
acquired a patent protected rotor based technology for use in the Analyst(R).

         ELISA

         ELISA or EIA tests employ small plastic vessels coated with particular
antigens. The test process involves introducing the patient's serum into the
vessel to allow a reaction to occur. If the antibody being tested for is
present, it will bind to the antigens on the inner surface of the vessel. After
the vessel is rinsed, the specifically bound antibody will remain while any
non-specific antibodies will be washed away. To detect the quantity of the
specific antibody, other compounds are added which will cause a color change in
the vessel, the intensity of which is proportionate to the quantity of the
specific antibody bound. If no color is noted, this indicates



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that the patient's serum did not contain detectable quantities of the specific
antibody.

         Immunofluorescence

         Hemagen'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

         Hemagen 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.

         Hemagglutination

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

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

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

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

         Analyst(R) Instrument System

         The Analyst(R) is a bench-top centrifugal clinical chemistry analyzer.
The Analyst(R) uses as a consumable a small rotor that contains dry prepackaged
reagents. The Analyst(R) spins the rotor mixing the patient sample with the dry
reagents producing a result in approximately ten minutes. Five types of rotors
providing a variety of clinical chemistry tests, all cleared for marketing by
the FDA, are currently on the market. The Analyst(R) instrument has been
designated by the FDA as moderately complex, and is therefore suitable for the
physician and veterinary office laboratories.

         Acute Phase Reactants and Apolipoproteins

         Hemagen has developed an 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. Hemagen currently



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markets two test kits to detect inflammatory signals.

CURRENT PRODUCTS

         ELISA Assays

         Hemagen develops and markets ELISA tests for the detection of disease
markers. As with corresponding hemagglutination tests produced by Hemagen, most
of Hemagen'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. Hemagen'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 Hemagen'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 Hemagen's ELISA tests are now available in both
lyophilized and all liquid formats.

         Hemagen's ELISA and hemagglutination kits (see below) include screening
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  or "IFA" Products

         Hemagen'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.

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

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

         Hemagglutination Assays

         Hemagen 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 called extractable nuclear antigens, or ENAs which are
markers of certain autoimmune diseases. Each of Hemagen's hemagglutination
assays is based on Hemagen's proprietary technique to lyophilize, or "freeze
dry," the RBCs which form the central component of a hemagglutination assay.
Hemagen's proprietary lyophilization technique for the preservation of RBCs
permits the production of standardized, easy-to-use and accurate
hemagglutination tests with an extended shelf life, most of which are attributes
previously unavailable using hemagglutination assays. The shelf-life of the
lyophilized RBCs before reconstitution may be up to 24 months. A technician
reconstitutes the powdered cells in a water-based solution prior to introducing
the patient's serum.

         Each hemagglutination test also requires a specific formula to
sensitize the RBCs prior to lyophilization such that they will react to a
specific antibody. For each of its tests, Hemagen uses a proprietary formula to
combine antigens and other reagents with RBCs in a manner that allows for
standard, sensitive and specific



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agglutination reactions. Results from Hemagen's test kits are generally
available within two hours. Hemagen's hemagglutination test kits aid in the
diagnosis of the following diseases:

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

         RAI Products

         Hemagen's general chemistry products, sold under the trade name
RAICHEM(TM) 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 Hemagen include those for blood levels of glucose,
cholesterol, triglycerides, uric acid, urea nitrogen and total protein. In all,
more than 70 of Hemagen's clinical chemistry products have been cleared by the
FDA for sale in the United States.

         Analyst(R) System Products

         Hemagen currently markets four FDA approved rotor types for use on the
Analyst(R) clinical chemistry analyzer, two general chemistry rotors, a glucose
test and a lipid screen test. In addition, Hemagen sells a general chemistry
rotor specifically designed for the veterinary marketplace called the VET16.

SOUTH AMERICAN ACTIVITIES

         In 1991, Hemagen 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.

         Hemagen 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, Hemagen 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 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, Hemagen's Vice
President of Research and Development, spends time in Brazil attending to
business of Hemagen. In fiscal 2000 and 1999, Hemagen derived product sales
through HDC of approximately $1,043,000 and $1,128,000, respectively. See
"Business - Facilities."


DISTRIBUTION AND MARKETING

         General

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

         From 1989 to January 1999, Hemagen had an agreement to provide test
kits to detect CMV antibodies



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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. The agreement required Olympus purchase a minimum
number of hemagglutination CMV test kits annually from Hemagen through February
1998, subject to Hemagen meeting certain requirements. Sales of CMV assays to
Olympus were approximately $976,000 during fiscal 1999. Olympus and Hemagen did
not renew this exclusive agreement when it terminated in March 1998 and Hemagen
continued to ship product under the agreement until January 1999. Today Hemagen
offers the same product under the Hemagen brand name. In fiscal 2000, these
sales amounted to approximately $297,000.

         In fiscal 1999 and 2000, Hemagen manufactured products on a private
label basis for C-W pursuant to a supply agreement and C-W distributed the
Analyst(R) product line for physician office laboratories in the United States.
C-W accounted for approximately 14% and 31% of Hemagen's revenue for the fiscal
years ended September 30, 2000 and 1999, respectively. Hemagen is in discussion
with C-W to terminate the private label supply agreement. At this time,
management believes the distribution agreement for the Analyst(R) will continue.
Hemagen does not believe the termination of the supply agreement will have a
negative material adverse effect on Hemagen's business because of the high
production costs traditionally incurred by Hemagen in producing this product.

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

PRODUCTS UNDER DEVELOPMENT

         Hemagen is presently developing new products in areas described below.
Hemagen spent approximately $526,000 and $1,452,000 on research and development
for the fiscal years ended September 30, 2000, and 1999, respectively.

         Analyst(R)

         Hemagen is in the process of completing development of the Panels+
rotor for the physician office laboratory marketplace. This product is intended
to ease reimbursement procedures and provide more complete information for both
the doctor and patient.

         Clinical Chemistry Reagents

         Hemagen 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 completed clinical chemistry lines
offered worldwide.

MANUFACTURING AND SOURCES OF SUPPLY

         Hemagen manufactures its ELISA test kits, and its products based on
immunofluorescence technology at its facility in Columbia, Maryland. Hemagen
plans to move its hemagglutination test kits from the Waltham, Massachusetts
facility to the Columbia, Maryland facility in the second quarter of fiscal
2001. Clinical chemistry products are produced at Hemagen's facility in San
Diego, California. Hemagen purchases red blood cells and many of the antigens
and other reagents used in the kits from outside vendors. Some reagents used in
Hemagen's test kits are manufactured at Hemagen's facilities. Hemagen uses
lyophilization equipment to preserve sensitized red blood cells for its
hemagglutination test kits.

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



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GOVERNMENT REGULATION

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

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

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

      The regulatory controls being imposed upon Hemagen 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 throughout the European Community once enacted.
Companies will be allowed a grace period to conform to the directive. Hemagen
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 must bear the CE Marking of Conformity by 2005. Hemagen
received the CE Marking for the Analyst instrument in December 1999.

COMPETITION

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

PRODUCT LIABILITY

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



                                       9
<PAGE>   10

PATENTS AND PROPRIETARY RIGHTS

         Hemagen 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, Hemagen relies upon confidentiality agreements with its employees. To
the extent that it relies on confidentiality agreements and trade secret
protection, there can be no assurance that Hemagen's efforts to maintain secrecy
will be successful or that third parties will not be able to develop the
technology independently. Hemagen may in the future apply for patent protection
for certain of its technology when management believes such protection would be
beneficial to Hemagen. The protection afforded by patents depends upon a variety
of factors which may severely limit the value of the patent protection,
particularly in foreign countries, and no assurance can be given that patents,
if granted, will provide meaningful protection for Hemagen's technology.

ROYALTY OBLIGATIONS

         Hemagen is required to pay royalties to third parties on sales of some
of its products. Hemagen has a license agreement with Dade Behring, Inc. for the
license of technical information relating to the Analyst(R) product line. The
license was signed in conjunction with the Analyst(R) acquisition and terminates
on August 2004. Hemagen also has a license agreement with Elf Acquitaine for the
use of technology involved in the manufacture and sale of the Analyst(R) product
line. This license agreement terminates upon the expiration of the last patent
associated with the applicable technology, which is February 2007.

EMPLOYEES

         As of September 30, 2000, Hemagen had 65 full-time employees, of which
three are executive officers, 14 are employed in sales, marketing, general and
administrative activities and 48 are involved in production and research and
development. As of September 30, 2000, Hemagen had two part-time employees.

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

ITEM 2.  DESCRIPTION OF PROPERTY.

         Hemagen maintains its principal executive offices, laboratory and
production operations in a 27,400 square foot leased facility in Columbia,
Maryland. Under the Columbia lease, which extends through July 30, 2007, Hemagen
pays approximately $136,000 per year in rent. Hemagen 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, Hemagen pays
approximately $201,000 per year. In addition, Hemagen leases a 1,900 square foot
warehouse facility near its production site for which it pays $13,080 per year.
Hemagen believes that its facilities are adequate for its present and
foreseeable needs. In fiscal 2001, Hemagen will close its Waltham, Massachusetts
facility and plans to sublease the facility. The Waltham, Massachusetts facility
includes one building that is a 4,000 square foot lab and office facility, and a
15,000 square foot facility which accommodates; a laboratory, production
operation and office. Hemagen pays rent in the amount of $133,000 per year for
the two facilities pursuant to the terms of that lease which ends May 30, 2002.
As of September 30, 2000, Hemagen has recorded a provision for the remaining
lease obligation for this facility.

         Hemagen's 51%-owned subsidiary, Hemagen Diagnosticos Comercio,
Importacao e Exportacao, Ltd, leases approximately 4,500 square feet in Sao
Paulo, Brazil pursuant to a lease that expired on September 30, 2000. This
subsidiary pays rent in an amount of approximately $5,500 per month for this
space. Hemagen believes that its facilities in Sao Paulo are adequate for its
present and foreseeable needs.

         It is management's opinion that all of the properties are adequately
insured.




                                       10
<PAGE>   11


ITEM 3.  LEGAL PROCEEDINGS.

         Hemagen 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.

         Hemagen'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. Hemagen's Common Stock is also traded
on the Boston Stock Exchange. On December 27, 2000 the closing bid and ask price
for the Common Stock as reported by NASDAQ were $ 0.50 and $0.531 per share,
respectively.

         On August 11, 2000, the staff of the Nasdaq SmallCap Market informed
Hemagen that it was reviewing Hemagen's eligibility for continued listing on
that market. The staff expressed three concerns, namely whether Hemagen had two
independent directors, whether the issuance of 209,700 shares of Common Stock to
the Redwood Group and William Hales in reimbursement for their expenses in the
1999 consent solicitation required shareholder approval and whether the sale of
$6,315,000 of Units in April 2000, consisting of convertible notes, common stock
and common stock purchase warrants required shareholder approval. On August 25,
2000, Hemagen informed Nasdaq that it had two independent directors, namely, Dr.
Alan S. Cohen and James R. LeRoy, who was added to the Board on June 13, 2000.
Hemagen also committed to seek shareholder ratification of the issuance of the
209,700 shares to the Redwood Group and William Hales in payment of expenses
incurred in the 1999 consent solicitation. That matter will be submitted to
shareholders for their ratification at the 2001 shareholders meeting expected to
be held in February 2001. With respect to the third comment, Hemagen disagrees
with Nasdaq's interpretation of the offering. Hemagen believes that the offering
did meet Nasdaq's standards in that it was in excess of book value and market
price at the time of issuance. This issue remains unresolved as Hemagen has not
received further communication from the Nasdaq staff on this matter.



                                       11
<PAGE>   12


    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 1999
and 1998. These prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.

                                                      HIGH              LOW
                                                      ----              ---
1999
First Fiscal Quarter..............................    $1.22             $0.63
Second Fiscal Quarter.............................    $1.63             $0.81
Third Fiscal Quarter..............................    $1.47             $0.81
Fourth Fiscal Quarter.............................    $2.87             $0.75
2000
First Quarter.....................................    $1.437            $0.81
Second  Quarter...................................    $6.00             $0.81
Third Quarter.....................................    $3.50             $1.38
Fourth Quarter....................................    $1.97             $1.09
2001
First Quarter (through December)                      $1.53             $0.56


         As of December 14,2000 there were 189 holders of record of Hemagen'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 expiring February 28, 2001
as reported by NASDAQ during Fiscal 1999 and 2000. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions.


                                                       HIGH              LOW
                                                       ----              ---
1999
First Fiscal Quarter...........................        $0.16             $0.09
Second Fiscal Quarter..........................        $0.28             $0.13
Third Fiscal Quarter...........................        $0.44             $0.13
Fourth Fiscal Quarter..........................        $0.59             $0.06
2000
First Quarter..................................        $0.25             $0.06
Second Quarter.................................        $3.00             $0.13
Third Quarter..................................        $1.13             $0.25
Fourth Quarter.................................        $0.53             $0.13
2001
First Quarter (through December)                       $0.25             $0.03

         As of December 14, 2000, there were 29 holders of record of Hemagen's
Common Stock Warrants expiring February 28, 2001.

         As of December 14, 2000, there were 56 holders of record of Hemagen's
Common Stock Warrants expiring April 30, 2002. The warrants are not currently
traded, but Hemagen has requested that the National Association of Securities
Dealers (NASD) list these warrants on the over-the-counter market.

DIVIDENDS

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




                                       12
<PAGE>   13



ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

Historically, Hemagen has concentrated its efforts on developing, manufacturing
and marketing medical diagnostic test kits used to aid in the diagnosis of
certain diseases and the profiling of general health conditions. Hemagen has
concentrated its expansion efforts on synergistic acquisitions of companies,
product lines and assets. Hemagen presently has approximately 148 different test
kits available that have received FDA clearance for sale in the United States.

Fiscal year 2000 represents the first year of Hemagen operations under a new
management team. On October 1, 1999, a new management team assumed control of
Hemagen as a result of a shareholder consent solicitation.

NEW MANAGEMENT ACTIONS

On October 1, 1999, when the new management group took control of Hemagen their
goals were to cure the default of the revolving line of credit and to reorganize
the Company to achieve sustained profitability. In order to achieve those goals
the management sought to:

         o        Improve the leverage of the Company
         o        Better manage working capital
         o        Reduce expenses; and
         o        Improve sales and marketing, increase profitable sales and
                  eliminate unprofitable product lines.

In order to achieve these goals Hemagen took the following actions during fiscal
2000.

PRIVATE PLACEMENT OFFERING MAY 2000

Hemagen had been in default since June 1999 of its BankBoston revolving line of
credit and required additional financing to meet commitments Hemagen had made
related to the Analyst(R) acquisition. Although the acquisition of the
Analyst(R) took place in August 1998, the transition of the manufacturing
operations to Hemagen's facility required additional capital and purchase
commitments had been made for Analyst(R) inventory. In the period October 1,
1999 through April 17, 2000, Hemagen continued to borrow under the revolving
line of credit and increased the amount due under the revolving line of credit
to approximately $3,851,000 at April 17, 2000 from $3,170,000 at September 30,
1999. Management attempted to refinance the revolving line of credit but could
not secure terms that were favorable to Hemagen.

Hemagen's new management refinanced the revolving line of credit with a private
placement offering completed in May 2000. The offering consisted of units of
senior subordinated convertible notes, detachable warrants, and common stock.
Each unit was sold for $500,000 and consisted of one $500,000 senior
subordinated secured convertible note, 200,000 detachable warrants to purchase
common stock and 93,750 shares of common stock.

The senior subordinated secured convertible notes mature on April 17, 2005 with
no principal payments required until maturity. Hemagen may repay these notes at
any time at the full face value plus accrued and unpaid interest. The notes pay
quarterly interest at the annual rate of 8%. The face value of these notes is
$6,315,000. The effective interest rate on these notes was calculated to be
approximately 58% because of the value attributed to the warrants and common
stock issued in the offering which resulted in an original issue discount of
$5,185,000. The original issue discount is being amortized over the term of the
notes. As of September 30, 2000, the unamortized discount was approximately
$5,047,000. The effect of the unamortized discount is that Hemagen will
recognize non-cash interest expense for the term of the notes.

The senior subordinated secured convertible notes are convertible into shares of
common stock at the conversion price of $2.50 per share. The conversion price is
subject to a reset on the last day of the six months following the effectiveness
of the registration statement covering the shares of common stock issued as part
of the private placement units and the common stock issuable upon conversion of
the notes. The registration statement was declared effective July 21, 2000. The
reset calls for the conversion price to be adjusted to equal the lesser of (i)
the conversion price of $2.50 or (ii) the average closing bid price for the
common stock as reported by the Nasdaq SmallCap Market for the twenty trading
days prior to the reset date, provided, however, the adjusted conversion price
shall not be less than $2.00 per share.



                                       13
<PAGE>   14

The warrants issued allow the holder to purchase one share of common stock at an
exercise price of $2.75 at any time on or after April 30, 2001 until April 30,
2002. In conjunction with the private placement offering, 2,526,000 warrants
were issued. Hemagen has requested that the National Association of Securities
Dealers (NASD) list these warrants on the over-the-counter market. The estimated
fair-value of the warrants at the time of closing was approximately $1.34 each
or approximately $3,385,000 in total. An additional 75,800 of warrants were
issued to the placement agent of the offering at an estimated value of $101,572.

The offering provided for the issuance of 1,184,072 shares of common stock to
unit holders. These shares were valued at approximately $1.52 per share for a
total value of approximately $1,800,000. The placement agent for the offering
was issued 75,800 shares at a value of $115,216.

The net proceeds of the private placement were $6,025,000 and were used to repay
the outstanding balance of the revolving line of credit with BankBoston of
$3,851,000, to satisfy past due trade payables to Dade Behring, Inc., of
approximately $450,000, and to pay other trade vendors in excess of $500,000
which were past due. Of the $950,000 of past due payables, approximately 80%
were related to the completion of the Analyst(R) acquisition which included
ongoing contract manufacturing expenses, physical relocation of Analyst(R)
manufacturing equipment and various other expenditures related to the
transition.

WORKING CAPITAL MANAGEMENT

Hemagen has worked to better manage working capital by reducing raw material and
finished goods inventories and by better managing cash receipts and
disbursements. At September 30, 2000, Hemagen's working capital was
approximately $3,628,000 compared to approximately $872,000 at September 30,
1999.

REDUCTION OF EXPENSES

Hemagen has instituted an overall plan to reduce expenses and better utilize its
resources. This plan centers on the consolidating facilities, reducing
duplicative functions and focusing Research and Development activities. In the
second fiscal quarter of 2001 the Waltham Massachusetts facility will be closed
and all operations previously carried on in Waltham will be relocated to
Hemagen's new headquarters in Columbia, Maryland. Hemagen provided for the
closure and related termination costs in the fourth quarter of fiscal 2000. The
closure provision totaled $879,000 and included a provision of $361,000 for
severance costs, $233,000 for future lease obligations, a provision of $191,000
for charges related to equipment and leasehold improvements and approximately
$94,000 for other closing costs. This consolidation is expected to result in
significant reductions in rent, warehouse, utility and personnel expenses. These
savings are projected to be in the range of $400,000 to $500,000 per year.
Production and supply inventory requirements will also be reduced resulting in
overall cost savings.

In fiscal 2000, Hemagen renegotiated a significant supply agreement with Dade
Behring, Inc. related to the Analyst(R) product line that will result in cost
savings. Hemagen has sought to exercise tighter control over Research &
Development spending. Notwithstanding, Hemagen remains actively engaged in
several commercially significant Research & Development projects. Management
will work to continue to reduce Hemagen's operating expenses.

IMPROVEMENT IN SALES AND MARKETING

In fiscal 2000, Hemagen hired several industry professionals to fill various
sales and marketing positions. Hemagen signed supply agreements with Roche
Diagnostics, Inc., Quest Diagnostics, Inc., and replaced some of the blood
banking business that had been previously lost. Hemagen is currently negotiating
to terminate a contract manufacturing agreement that it determined was its
highest cost production. The termination should be completed in the second
fiscal quarter of 2001 and should result in converting related inventory into
approximately $250,000 in cash.

There can be no assurance that the above actions or the anticipated results
will materialize. The accompanying financial statements have been prepared
assuming that Hemagen will continue as a going concern. As explained in the
succeeding paragraphs, Hemagen has sustained recurring operating losses in
fiscal years 2000 and 1999 and a cash flow deficit in fiscal year 2000.
Having begun to take the above actions, Hemagen believes that cash flow from
operations and cash on hand at September 30, 2000 will be sufficient to finance
its operations for fiscal 2001. Additionally, over the next twelve months
Hemagen will attempt to secure a traditional working capital revolving



                                       14
<PAGE>   15

line of credit for up to $1 million. The Senior Secured Subordinated Convertible
Notes that made up the Private Placement provide for Hemagen to secure such
financing by allowing the lender to obtain a first lien on all assets of Hemagen
ahead of the Note holders in an amount not to exceed $1 million. Hemagen can
give no assurance that it will be able to obtain such financing, or that, if
obtained that such terms will be favorable to the company.


RESULTS OF OPERATIONS

         Fiscal Year Ended September 30, 2000 Compared to Fiscal Year Ended
September 30, 1999

         Revenues for fiscal 2000 decreased $3,593,000 (25%) to approximately
$10,996,000 from approximately $14,589,000 for fiscal 1999. Sales of Hemagen's
Analyst(R) product line were $1,684,000 lower than the prior year. This
reduction is attributed to initial stocking shipments made in fiscal 1999. In
fiscal 1999, Hemagen had sales of $976,000 to Olympus for the CMV product under
a distribution agreement that was effectively terminated in January 1999
resulting in zero sales to Olympus in fiscal 2000. In July 1999, Hemagen sold
its CPI business unit, which accounted for $744,000 of the sales in fiscal 1999
and zero sales in fiscal 2000. Also, Hemagen's Virgo products and Carter-Wallace
contract manufacturing sales decreased $410,000 and $284,000, respectively.
These sales reductions are offset by an increase of $403,000, at Hemagen's
Raichem division.

         Cost of product sales decreased approximately $1,791,000 (16%) to
approximately $9,619,000 from approximately $11,410,000 (16%) due to the overall
decrease in sales. Cost of product sales as a percentage of sales increased to
87% from 78%. This increase is attributed to the loss of the higher margin
product sales and the relocation and set-up costs associated with the Analyst(R)
product-line. In addition, the relocation of products from the Waltham,
Massachusetts facility to Columbia, Maryland resulted in manufacturing
inefficiencies in fiscal 2000. In fiscal 2000, inventory reserves for obsolete
and excess inventory were reduced by approximately $175,000 while total gross
inventories were reduced approximately $1,651,000.

         Research and development expenses for fiscal 2000 decreased
approximately $926,000 (64%) to approximately $526,000 from approximately
$1,453,000. This decrease was primarily due to the elimination of several
positions and the consolidation of certain research and development activities
at the corporate office.

         Selling, general and administrative expenses for fiscal 2000 decreased
approximately $228,000 (5%) to approximately $4,220,000 primarily due to reduced
legal expenses, royalty expenses associated with Analyst(R) product line, trade
show expense and advertising expense.

         Other operating costs decreased to $879,000 in fiscal 2000 from
$1,943,000 in the prior year. Current year charges include the estimated cost of
closing Hemagen's Waltham, Massachusetts's facility. These costs include
$361,000 of severance pay, $233,000 of future lease obligations, $191,000 of
impairment charges related to the equipment and leasehold improvements at the
facility and a general provision of $94,000 to provide for the estimated costs
of moving out of the facility and subletting the property. These costs were
provided for in the fourth quarter of fiscal 2000. Other operating costs in
fiscal 1999 consisted of impairment charges of approximately $1,000,000 for
goodwill and $147,000 for equipment, charges related to the consent solicitation
of approximately $545,000 and severance pay to former executives of
approximately $251,000.

         Net other expense increased to approximately $882,000 from
approximately $496,000 due to an increase in interest expense. Included in the
interest expense for the current year is approximately $138,000 of loan discount
amortization related to the senior subordinated secured convertible notes issued
during fiscal 2000 and $100,000 for a fee that was paid, in common stock, on the
promissory note that was in default on September 30, 2000. This default was
cured on November 9, 2000 which was cured and restructured on November 9, 2000.
The common stock was issued shortly thereafter.

         Net loss for fiscal 2000 decreased to approximately $5,130,000 compared
to approximately $5,160,000 the previous year primarily due to lower sales and
increased product costs.


LIQUIDITY AND CAPITAL RESOURCES

During fiscal 2000, Hemagen used approximately $1,943,000 in cash to fund its
operating activities. This amount includes $3,089,000 required to fund the net
loss, after adjusting for non-cash expenses (consisting principally of
depreciation, amortization, and inventory write offs) and the non-cash closure
provision of $879,000 recognized



                                       15
<PAGE>   16

for the closing of the Waltham, Massachusetts facility. Also contributing to the
use of cash was $614,000 required for reductions in trade payables and customer
deposits. Inventory declined by $1,651,000 which provided additional liquidity.
This reduction is attributed to tighter controls over inventory purchasing and a
change in the valuation of inventory.

At September 30, 2000, Hemagen had $1,460,000 of unrestricted cash, working
capital of $3,451,000 and a current ratio of 1.8 to 1.0. In fiscal 2000, Hemagen
had capital expenditures of $357,000 and has no major capital expenditures
planned for fiscal 2001.

Hemagen believes that cash flow from operations and cash on hand at September
30, 2000 will be sufficient to finance its operations and capital expenditures
for fiscal 2001. Hemagen can give no assurance that it will have sufficient
cash flow to finance operations. Hemagen's auditors (see Financial Statements)
have included an explanatory paragraph in their audit opinion expressing
substantial doubt as to Hemagen's ability to continue as a going concern.
Additionally, over the next twelve months Hemagen will attempt to secure a
traditional working capital revolving line of credit for up to $1 million. The
Senior Secured Subordinated Convertible Notes that made up the Private
Placement provide for Hemagen to secure such financing by allowing the lender
to obtain a first lien on all assets of Hemagen ahead of the Note holders in an
amount not to exceed $1 million. Hemagen can give no assurance that it will be
able to obtain such financing, or that, if obtained that such terms will be
favorable to the company.


FISCAL 2000 COMPARED TO FISCAL 1999

Cash used in operating activities increased $2,273,000 in fiscal 2000 from
providing $330,000 in cash in fiscal 1999 to using $1,943,000 of cash in fiscal
2000. This increase is attributed to an increase in the net loss after adjusting
for non-cash charges of $1,613,000 and to changes in working capital items in
fiscal 2000 compared to fiscal 1999. Such changes include a $2,488,000 change in
the cash used to fund accounts payable, accrued expenses and customer deposits
and a $894,000 change in the cash used to fund accounts receivable offset by a
reduction in the cash used to fund inventory of $2,655,000.

Cash used by investing activities totaled $357,000 in fiscal 2000 as compared to
$39,000 in fiscal 1999. This increase is attributed to capital expenditures made
in fiscal 2000 related to the transition and relocation of the Analyst(R)
product line to Hemagen's facility in Columbia, Maryland.

Cash provided by financing activities totaled $3,469,000 in fiscal 2000 as
compared to $420,000 used in fiscal 1999. This increase in cash provided is
attributed to the refinancing of the revolving credit line with the private
placement offering completed in May 2000 (see Note 11 to the Financial
Statements). Hemagen had a promissory note payable to Dade Behring, Inc. of
$1,250,000 related to the Analyst(R) acquisition that was due on September 1,
2000. Prior to September 1, 2000, the management of Hemagen and Dade Behring,
Inc. agreed in principal to restructure the note payable. At September 30, 2000,
this note was in default. On November 9, 2000, Hemagen signed the restructuring
agreement with Dade to settle on the promissory note, agree to a purchase price
adjustment and agree to other amounts for production services. This
restructuring agreement involved a cash payment of $800,000, the issuance of a
$397,000 note, and the issuance of 100,000 shares of Hemagen's common stock. The
note bears interest at 10% per year, requires monthly payments of approximately
$12,800 and requires a balloon payment of approximately $134,000 due on November
15, 2002.

IMPACT OF INFLATION

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

NEW ACCOUNTING PRONOUNCEMENTS

              In June 1998, the Financial Accounting Standards Board issued FSAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 requires companies to recognize all derivative contracts
as either assets or liabilities in the balance sheet and to measure them at
their fair values. If certain conditions are met, a derivative may be
specifically designed 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 assets or liability or (ii) the
earnings effect of the hedged forecasted transaction. For a



                                       16
<PAGE>   17

derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Historically, Hemagen has not entered into derivative contracts
either to hedge existing risks or for speculative purposes. Accordingly, Hemagen
does not expect adoption of the new standard to effect its financial statements.

              In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 which summarizes certain of the SEC
staff's view in applying generally accepted accounting principles to revenue
recognition in financial statements. The Staff Accounting Bulletin is effective
for the year beginning October 1, 2000. The initial adoption of the guidance is
not anticipated to have a material impact on Hemagen's results of operations or
financial position; however, the guidance may impact the way in which Hemagen
will account for future transactions.

              In March 2000, the FASB issued Interpretation No 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB
No. 25 for (a) the definition of employee for purposes of applying APB 25, (b)
the criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) the accounting consequences of various modifications to the previously fixed
stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 2, 2000
but certain conclusions cover specific events that occur after either December
15, 1998 or January 12, 2000. Hemagen believes that adoption of FIN 44 will not
have an affect on Hemagen's financial statements but may impact the accounting
for grants or awards in future periods.


ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

ITEM 8.  CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

         In December 2000, the FASB Emerging Issues Task Force (EITF) issued a
         consensus that requires the remeasurement of original issue discount on
         debt securities with characteristics similar to the securities issued
         by the Company in the private placement completed in May 2000. The
         Company is currently reviewing the impact in the financial statements
         of adopting this EITF consensus and believes that such adoption will
         increase the original issue discount by approximately $1,163,000 and
         will result in additional interest expense over the remaining repayment
         term of the convertible debt security. Upon completion of its review,
         the Company will record any change in the original issue discount, with
         a corresponding cumulative adjustment to interest expense, in the first
         quarter of 2001.



                                       17
<PAGE>   18


                                    PART III

         Items 9 through 12 are incorporated by reference to the Registrant's
Proxy statement regarding its fiscal 2001 Annual Shareholders Meeting filed with
the Commission pursuant to Regulation 14A.


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


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

<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                       ----

<S>                                                                                    <C>
Report of Independent Certified Public Accountants - BDO Seidman, LLP                   F-2
Consolidated Balance Sheets at September 30, 2000
and 1999                                                                                F-3 to F-4
Consolidated Statements of Operations for the years
ended September 30, 2000, and 1999                                                      F-5
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 2000, and 1999                                        F-6
Consolidated Statements of Cash Flows for the years
ended September 30, 2000, and 1999                                                      F-7
Notes to Consolidated Financial Statements                                              F-8 to F-34
</TABLE>



(a)(3)  EXHIBIT LIST.


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


<S>               <C>                                                                                    <C>
 3.1              Certificate of Incorporation.                                                                A

 3.2              Bylaws.                                                                                      A

 4.1              Specimen Stock Certificate                                                                   A

 4.2              Rights Agreement dated January 27, 1999.                                                     A

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

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

10.2              Assignment and Assumption Agreement between Hemagen and
                  Seragen, Inc., dated September 12, 1985.                                                     A

10.5              Financial Assistance Agreement between Hemagen and Hemagen
                  Diagnosticos, Comercio, Importacao e Exportacao Ltd., dated July 31, 1991.                   A

10.6*             1992 Stock Option Plan.                                                                      A


10.7              Product Purchase Agreement between Hemagen and Olympus
                  Corporation, dated February 24, 1989.                                                        A

10.8              OEM Agreement between Hemagen and Sigma Diagnostics, Inc.,
                  dated May 11, 1992.                                                                          A
</TABLE>


                                       18
<PAGE>   19

<TABLE>
<S>               <C>                                                                                         <C>
10.11             Lease between Hemagen and Philip Pagliazzo and Rose Pagliazzo,
                  dated May 15, 1992.                                                                          A

10.12             Product Development Agreement between Hemagen and Sigma
                  Diagnostics, Inc., dated October 16, 1992.                                                   A

10.13*            Revised Employment Agreement between Hemagen and Dr. de Oliveira.                            A

10.14*            Revised Employment Agreement between Hemagen and Dr. Franzblau.                              A

10.15             Description of Hemagen's lease for certain premises located
                  in Waltham, Massachusetts.                                                                   A

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

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

10.18             Equity Purchase Agreement between Hemagen and HDC, dated as of
                  October 1, 1992.                                                                             A

10.19             Form of Warrant issued in connection with the Bridge Loan and Statement
                  of Registration Rights.                                                                      A

10.20             Master Lease Agreement between Hemagen and Aberlyn Capital
                  Management Limited Partnership, dated April 1, 1993.                                         B

10.21             Product Development Agreement between Hemagen and
                  Boehringher Mannheim GmbH, dated November 25, 1993.                                          C

10.22             Option Agreement between Hemagen and Boston University, dated
                  October 15, 1993.                                                                            C

10.23             Agreement between Hemagen and Carter-Wallace, Inc. dated
                  December 22, 1994.                                                                           D

10.24             License Assignment and License Agreement between Hemagen and
                  Aberlyn Capital Management Limited Partnership dated December 30, 1994.                      D

10.25             Settlement  Agreement dated September 30, 1999.                                              E

10.26             Distribution Agreement between the Company and Donnor Com. IND. LTDA

10.27             Distribution Agreement between the Company and Phoenix Diagnostics, Inc.

10.28             Form of Warrant expiring April 30, 2002.                                                     G

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

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

10.31             Consulting agreement between the Company and Thomas A. Donelan
                  Thomas A. Donelan and Christopher P. Hendy, dated October 1, 1999.                           F


21                Subsidiaries of the Registrant                                                               G
</TABLE>



                                       19
<PAGE>   20

<TABLE>
<S>               <C>                                                                                          <C>
23                Consent of Independent Certified Public Accountants                                          F

28                Prospectus Sale Letter Dated July 28, 2000                                                   G
</TABLE>

*Management compensatory contracts.



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

B.       Incorporated by reference to Hemagen's Form 10-QSB for the quarter
         ended March 30, 1993.

C.       Incorporated by reference to Hemagen's Form 10-KSB for the Fiscal Year
         ending September 30, 1994.

D.       Incorporated by reference to Hemagen's Form 10-QSB for the quarter
         ending December 31, 1994.

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

F.       Filed herewith.

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

(b)      Reports on Form 8-K. (i) On October 7, 1999 Hemagen filed a Form 8-K
         reporting on Item 1, Changes in Control of Registrant.




                                       20
<PAGE>   21




                                   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 29, 2000             By: /s/ Jerry L. Ruyan
                                       ----------------------------------------
                                        Jerry L. Ruyan, Chief Executive Officer



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

<TABLE>
<CAPTION>
Name                                     Capacity                              Date
----                                     --------                              ----
<S>                                 <C>                                        <C>
/s/ Jerry L. Ruyan                  CEO and Chairman
--------------------------------    of the Board of Directors                  December 29, 2000
Jerry L. Ruyan


/s/ William P. Hales                President, Director                        December 29, 2000
--------------------------------
William P. Hales


/s/ Ricardo M. de Oliveira, M.D.    V.P. Research and Development,
--------------------------------    Director                                   December 29, 2000
Ricardo M. de Oliveira, M.D.


/s/ Alan S. Cohen, M.D.             Director                                   December 29, 2000
--------------------------------
Alan S. Cohen, M.D.


/s/ Thomas A. Donelan               Director                                   December 29, 2000
--------------------------------
Thomas A. Donelan


/s/ Christopher P. Hendy            Director                                   December 29, 2000
--------------------------------
Christopher P. Hendy


/s/ James R. LeRoy                  Director                                   December 29, 2000
--------------------------------
James R. LeRoy


/s/ Deborah F. Ricci                Principal Financial Officer                December 29, 2000
--------------------------------
Deborah F. Ricci
</TABLE>






                                       21
<PAGE>   22
                                                       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 operations                                            F-5

   Statements of stockholders' equity                                  F-6

   Statements of cash flows                                            F-7

   Notes to consolidated financial statements                      F-8 to F-36





                                      F-1
<PAGE>   23





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, 2000 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company sustained significant operating
losses in 2000 and 1999 and incurred a significant operating cash flow deficit
in 2000. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of these uncertainties.

                                                 BDO Seidman, LLP




Washington, DC
December 12, 2000




                                      F-2
<PAGE>   24




                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS

================================================================================

<TABLE>
<CAPTION>
September 30,                                                                   2000                 1999
=========================================================================================================

<S>                                                                    <C>                  <C>
ASSETS

CURRENT:
   Cash and cash equivalents                                           $   1,460,446        $     289,320
   Accounts receivable, less allowance for doubtful accounts
     of $598,000 and $368,000 at September 30, 2000 and
     1999, respectively (Note 3)                                           1,704,481            1,877,016
   Inventories (Notes 5 and 13)                                            4,188,162            5,664,906
   Prepaid expenses and other current assets                                 177,376              294,198
---------------------------------------------------------------------------------------------------------

     Total current assets                                                  7,530,465            8,125,440

PROPERTY AND EQUIPMENT, net of accumulated
  depreciation and amortization (Notes 6 and 13)                           3,079,470            3,773,150

OTHER ASSETS (Note 7)                                                        321,212              253,874
---------------------------------------------------------------------------------------------------------

                                                                       $  10,931,147        $  12,152,464
=========================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.




                                      F-3
<PAGE>   25



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS

================================================================================


<TABLE>
<CAPTION>
September 30,                                                                                2000                 1999
======================================================================================================================

<S>                                                                                 <C>                  <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Subordinated note payable, net of unamortized discount
     of $86,870 at September 30, 1999 (Note 3)                                      $   1,050,000        $   1,163,130
   Note payable - bank (Note 10)                                                                -            3,169,589
   Checks issued against future deposits                                                        -              411,140
   Accounts payable and accrued expenses (Notes 3, 4, 8 and 13)                         2,826,573            2,119,159
   Deferred revenue                                                                       122,069               84,374
   Customer deposits                                                                       81,239              306,252
----------------------------------------------------------------------------------------------------------------------

     Total current liabilities                                                          4,079,881            7,253,644

Senior subordinated secured convertible notes, net of unamortized
   discount of $5,046,697 (Note 11)                                                     1,268,303                    -

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

     Total liabilities                                                                  5,348,184            7,253,644

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

COMMITMENTS AND CONTINGENCIES (Notes 9, 13, and 18)

STOCKHOLDERS' EQUITY (Notes 11 and 12):
   Preferred stock, $.01 par value - 1,000,000 shares authorized;
     none issued                                                                                -                    -
   Common stock, $.01 par value - 30,000,000 shares authorized; 9,697,790 and
     7,851,890 shares issued at September 30, 2000 and 1999, respectively                  96,978               78,519
   Additional paid-in capital                                                          19,236,767           13,440,947
   Accumulated deficit                                                                (13,655,145)          (8,525,009)

   Less treasury stock at cost; 100,000 shares at September 30, 2000 and 1999             (89,637)             (89,637)
   Less receivable from stockholders                                                       (6,000)              (6,000)
----------------------------------------------------------------------------------------------------------------------

     Total stockholders' equity                                                         5,582,963            4,898,820
----------------------------------------------------------------------------------------------------------------------

                                                                                      $10,931,147          $12,152,464
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>   26




                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS

================================================================================

<TABLE>
<CAPTION>
Years ended September 30,                                                                2000                 1999
==================================================================================================================

<S>                                                                               <C>                  <C>
NET SALES (Notes 16 and 17)                                                       $10,995,604          $14,588,739
------------------------------------------------------------------------------------------------------------------

COST AND EXPENSES:
   Cost of product sales                                                            9,618,713           11,410,117
   Research and development                                                           526,281            1,452,506
   Selling, general and administrative                                              4,219,679            4,447,634
   Other operating costs (Note 13)                                                    878,906            1,943,277
------------------------------------------------------------------------------------------------------------------

                                                                                   15,243,579           19,253,534
------------------------------------------------------------------------------------------------------------------

     Operating loss                                                                (4,247,975)          (4,664,795)
------------------------------------------------------------------------------------------------------------------

OTHER INCOME (EXPENSES):
   Interest income                                                                     10,340               21,295
   Interest expense                                                                  (890,714)            (349,011)
   Foreign exchange loss                                                               (3,993)            (123,574)
   Other income (expense)                                                               2,206              (44,270)
------------------------------------------------------------------------------------------------------------------

                                                                                     (882,161)            (495,560)
------------------------------------------------------------------------------------------------------------------

NET LOSS                                                                          $(5,130,136)         $(5,160,355)
------------------------------------------------------------------------------------------------------------------

NET LOSS PER SHARE OF COMMON STOCK
   Basic                                                                          $      (.53)         $     (.66)
   Diluted                                                                        $      (.53)         $     (.66)
------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.




                                      F-5
<PAGE>   27


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

================================================================================


<TABLE>
<CAPTION>
                                                                  Common Stock              Additional
                                                              --------------------            Paid-in           Accumulated
Years ended September 30, 2000 and 1999                     Shares         Par Value          Capital             Deficit
============================================================================================================================

<S>                                                        <C>              <C>            <C>                 <C>
BALANCE AT SEPTEMBER 30, 1998                              7,851,890        $78,519        $ 13,440,947        $ (3,364,654)


Purchase of treasury stock                                        --             --                  --                  --

Net loss                                                          --             --                  --          (5,160,355)
----------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999                              7,851,890         78,519          13,440,947          (8,525,009)

Exercise of common stock purchase warrants                    99,500            995             271,635                  --
Exercise of stock options                                    226,700          2,267             338,524                  --
Issuance of common stock settled in lieu of cash
  payments                                                   259,700          2,597             297,540                  --
Issuance of common stock in a private
  placement offering, net of fees paid                     1,260,000         12,600           1,587,916                  --
Issuance of common stock warrants in a
  private placement offering, net of fees paid                    --             --           3,300,205                  --

Net Loss                                                          --             --                  --          (5,130,136)
----------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000                              9,697,790        $96,978        $ 19,236,767        $(13,655,145)
============================================================================================================================
</TABLE>




<TABLE>
<CAPTION>
                                                                Treasury Stock               Receivable          Total
                                                              -------------------               From         Stockholders'
Years ended September 30, 2000 and 1999                      Shares            Cost         Stockholders         Equity
==========================================================================================================================


<S>                                                         <C>              <C>            <C>              <C>
BALANCE AT SEPTEMBER 30, 1998                                     --         $     --         $(6,000)        $ 10,148,812


Purchase of treasury stock                                  (100,000)         (89,637)             --              (89,637)

Net loss                                                          --               --              --           (5,160,355)
--------------------------------------------------------------------------------------------------------------------------

BALANCE AT SEPTEMBER 30, 1999                               (100,000)         (89,637)         (6,000)           4,898,820

Exercise of common stock purchase warrants                        --               --              --              272,630
Exercise of stock options                                         --               --              --              340,791
Issuance of common stock settled in lieu of cash
  payments                                                        --               --              --              300,137
Issuance of common stock in a private
  placement offering, net of fees paid                            --               --              --            1,600,516
Issuance of common stock warrants in a
  private placement offering, net of fees paid                    --               --              --            3,300,205

Net Loss                                                          --               --              --           (5,130,136)
--------------------------------------------------------------------------------------------------------------------------

BALANCE AT SEPTEMBER 30, 2000                               (100,000)        $(89,637)        $(6,000)        $  5,582,963
==========================================================================================================================
</TABLE>



                     See accompanying notes to consolidated financial statements



                                      F-6
<PAGE>   28



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

================================================================================

<TABLE>
<CAPTION>
Years ended September 30,                                                                    2000                 1999
======================================================================================================================

<S>                                                                                   <C>                  <C>
CASH FLOW FROM OPERATING ACTIVITIES:
   Net loss                                                                           $(5,130,136)         $(5,160,355)
   Adjustments to reconcile net loss to net cash (used) provided
     by operating activities:
      Depreciation and amortization                                                     1,111,678            1,364,142
      Amortization of debt discount                                                       224,789               94,767
      Provision for inventory obsolescence                                               (174,623)           1,078,038
      Foreign exchange loss                                                                 3,993              123,574
      Provision for impairment of long-lived assets                                             -            1,146,867
      Loss on sale of property and equipment                                                    -               55,670
      Gain on sale of CPI                                                                       -               (1,489)
      Changes in operating assets and liabilities, net of effects of divestiture of
       CPI in 1999:
        Accounts receivable                                                               (27,465)             867,003
        Inventories                                                                     1,651,367           (1,003,288)
        Prepaid expenses and other current assets                                          94,633              (40,440)
        Checks issued against future deposits                                            (411,140)             411,140
        Accounts payable and accrued expenses                                             901,241            1,156,538
        Customer deposits                                                                (225,013)             306,252
        Deferred revenue                                                                   37,695              (68,555)
----------------------------------------------------------------------------------------------------------------------
         Net cash (used) provided by operating activities                              (1,942,981)             329,864
----------------------------------------------------------------------------------------------------------------------

CASH FLOW FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                                    (356,659)             (54,755)
   Proceeds from sales of property and equipment                                                -                5,480
   Other assets                                                                                 -               10,240
----------------------------------------------------------------------------------------------------------------------
         Net cash used by investing activities                                           (356,659)             (39,035)
----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net repayments under revolving line of credit                                       (3,169,589)            (330,411)
   Net proceeds from issuance of common stock in a private
     placement offering                                                                 1,600,516                    -
   Net proceeds from issuance of warrants in a private
     placement offering                                                                 3,486,412                    -
   Net proceeds from issuance of debt in a private
     placement offering                                                                   938,596                    -
   Exercise of stock options and warrants                                                 613,421                    -
   Purchase of treasury stock                                                                   -              (89,637)
----------------------------------------------------------------------------------------------------------------------
         Net cash provided (used) by financing activities                               3,469,356             (420,048)
----------------------------------------------------------------------------------------------------------------------


EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS                                       1,410                6,346
----------------------------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    1,171,126             (122,873)
Cash and cash equivalents, beginning of year                                              289,320              412,193
----------------------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of year                                                $ 1,460,446            $ 289,320
======================================================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.



                                      F-7
<PAGE>   29



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

1.     NATURE OF           Hemagen Diagnostics, Inc. (the "Company") is a
       BUSINESS AND        biotechnology company that develops, manufactures,
       ORGANIZATION        and markets medical diagnostic test kits used to aid
                           in the diagnosis of certain autoimmune and infectious
                           diseases. In the United States, the Company sells its
                           products directly to physicians, veterinarians,
                           clinical laboratories and blood banks and on a
                           private-label basis through multinational
                           distributors of medical supplies. Internationally,
                           the Company sells its products primarily through
                           distributors. The Company also manufactures and sells
                           an FDA-cleared clinical chemistry analyzer ("The
                           Analyst") used to measure important constituents in
                           human and animal blood. The Company sells The Analyst
                           through distributors servicing both the physician's
                           office laboratory and veterinary markets. The Company
                           was incorporated in the Commonwealth of Massachusetts
                           in 1985 and reincorporated in the state of Delaware
                           in 1992.

                           The Company's consolidated financial statements have
                           been presented on the basis that it is a going
                           concern, which contemplates the realization of assets
                           and the satisfaction of liabilities in the normal
                           course of business. The Company incurred net losses
                           of $5,130,136 and $5,160,355 in fiscal 2000 and
                           fiscal 1999, respectively. At September 30, 2000 the
                           Company was in default of its note payable to Dade
                           Behring of $1,250,000 that was due on September 1,
                           2000. Prior to September 1, 2000, the Company and
                           Dade Behring agreed in principal to restructure the
                           $1,250,000 note payable. This default was
                           subsequently cured on November 9, 2000 (Note 3).



                                      F-8
<PAGE>   30

                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

                           Management has implemented a plan to reduce expenses,
                           better manage working capital and improve sales and
                           marketing. The plan centers on the consolidation of
                           facilities, reducing duplicative functions and
                           focusing on Research and Development activities. In
                           the second quarter of fiscal 2001, the Waltham,
                           Massachusetts facility will be closed and all
                           operations previously carried on in Waltham will be
                           relocated to the Company's new headquarters in
                           Columbia, Maryland. This consolidation is expected to
                           result in reductions in rent, warehouse, utility and
                           personnel expenses. These savings are projected to be
                           in the range of $400,000 to $500,000 per year.
                           Production and supply inventory requirements will be
                           reduced resulting in overall cost savings. In fiscal
                           2000, the Company renegotiated a significant supply
                           agreement with Dade Behring, Inc. related to the
                           Analyst(R) product line that will result in cost
                           savings. During fiscal 2000, the Company hired
                           several industry professionals to fill various sales
                           and marketing positions. It also signed several
                           supply agreements for better margin products and is
                           currently working on the termination of a
                           manufacturing contract that it has determined was its
                           lowest margin business.

                           Based upon cash flow projections, the Company
                           believes the anticipated cash flow from operations
                           and the proceeds from the private placement offering
                           completed in May 2000 will be sufficient to finance
                           the Company's operating needs for the next twelve
                           months. The Company can give no assurance that the
                           above actions or anticipated results will
                           materialize.

                           Additionally, over the next twelve months the Company
                           will evaluate securing a traditional working capital
                           revolving line of credit for up to one million
                           dollars. The Senior Secured Subordinated Convertible
                           Notes that made up the Private Placement provide for
                           the Company to secure such financing by allowing the
                           lender to obtain a first lien on all assets of
                           Hemagen in front of the Note holders for an amount
                           not to exceed one million dollars. The Company can
                           give no assurance that it will be able to obtain such
                           financing, or that, if obtained that such terms will
                           be favorable to the Company. The financial statements
                           do not include any adjustments relating to the
                           recoverability and classification of asset amounts or
                           the amounts and classifications of liabilities that
                           might be necessary should the Company be unable to
                           continue as a going concern.




                                      F-9
<PAGE>   31


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

2.     SIGNIFICANT
       ACCOUNTING
       POLICIES

       Estimates and       The preparation of financial statements in conformity
       Assumptions         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       The accompanying consolidated financial statements
       Consolidation       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, 2000.
                           The results of Cellular Products, Inc. ("CPI") are
                           included through July 23, 1999 (the effective date of
                           the CPI divestiture 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.

       Foreign Currency    The functional currency of HDC is the U.S. dollar.
       Translation         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 The Company considers all investments
                           with original maturities of three months or less to
                           be cash equivalents.




                                      F-10
<PAGE>   32


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

2.     SIGNIFICANT
       ACCOUNTING
       POLICIES
       (Continued)

       Concentration of    Concentration of credit risk with respect to accounts
       Credit Risks        receivable is limited due to the large number of
                           customers comprising the Company's customer base.
                           Customers' financial condition is reviewed on an
                           ongoing basis, and collateral is not required. The
                           Company maintains reserves for potential credit
                           losses and such losses, in the aggregate, have not
                           exceeded management's expectations.

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

       Long-Lived Assets   The Company follows the provisions of Statement of
                           Financial Accounting Standards No. 121 ("SFAS No.
                           121"), "Accounting for the Impairment of Long-Lived
                           Assets and Assets to be Disposed of," which
                           establishes accounting standards for the impairment
                           of long-lived assets and certain identifiable
                           intangibles to be held and used and for long-lived
                           assets and certain identifiable intangibles to be
                           disposed of.

                           The Company reviews the carrying values of its
                           long-lived, identifiable intangible assets and
                           goodwill for possible impairment whenever events or
                           changes in circumstances indicate that the carrying
                           amount of the assets may not be recoverable. Any
                           long-lived assets held for disposal are reported at
                           the lower of their carrying amounts or fair value
                           less cost to sell. During the fourth quarter of
                           fiscal 1999, the Company recorded impairment losses
                           related to its goodwill and certain equipment (see
                           Notes 6, 7 and 13).

       Property and        Property and equipment is stated at cost.
       Equipment           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.



                                      F-11
<PAGE>   33

                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


2.   SIGNIFICANT
     ACCOUNTING
     POLICIES
     (Continued)

     Goodwill              Goodwill resulting from the excess of cost over fair
                           value of net assets acquired has been amortized on a
                           straight-line basis over 15 years through September
                           30, 1999. Beginning in fiscal 1999, the remaining
                           carrying value of goodwill at September 30, 1999 of
                           $253,874, which is net of a $1,000,000 impairment
                           write-down (see Note 7), is being amortized on a
                           straight-line basis over 5 years, based on the
                           Company's re-evaluation of the estimated useful life
                           of the goodwill.

     Income Taxes          The Company follows 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.

     Fair Value of         The carrying amounts of cash, accounts receivable,
     Financial             accounts payable and accrued expenses approximate
     Instruments           fair value because of the short-term nature of these
                           items. The current fair value of the subordinated
                           note payable and the senior subordinated secured
                           convertible notes closely approximates carrying
                           value.

     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.

     Advertising           The Company expenses advertising costs as incurred.
                           Advertising expense was approximately $15,000 and
                           $76,000 in fiscal 2000 and 1999, respectively.



                                      F-12
<PAGE>   34


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


2.     SIGNIFICANT
       ACCOUNTING
       POLICIES
       (Continued)

       Stock Options       The Company follows the provisions of Statement of
                           Financial Accounting Standard No. 123 ("SFAS No.
                           123"), "Accounting for Stock-Based Compensation" for
                           options granted to employees. 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 net
                           income (loss) per basic and diluted share of common
                           stock on a pro forma basis.

       Net Income (Loss)   The Company follows Statement of Financial Accounting
       Per Share of        Standards No. 128 ("SFAS No. 128"), "Earnings per
       Common Stock        Share." Under SFAS No. 128, basic earnings per share
                           excludes the effect of any dilutive options, warrants
                           or convertible securities and is computed by dividing
                           the net income (loss) available to common
                           shareholders by the weighted average number of common
                           shares outstanding for the period. Diluted earnings
                           per share is computed by dividing the net income
                           (loss) available to common shareholders by the sum of
                           the weighted average number of common shares and
                           common share equivalents computed using the average
                           market price for the period under the treasury stock
                           method.

                           Common share equivalents outstanding at September 30,
                           2000 and 1999 were not included in the denominator
                           for diluted income per share as their effect was
                           antidilutive.

       Research and        All costs incurred to establish the technological
       Development Costs   feasibility of products are considered research and
                           development costs, which are charged to expense as
                           incurred.




                                      F-13
<PAGE>   35


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


2.     SIGNIFICANT
       ACCOUNTING
       POLICIES
       (Continued)

       New Accounting      In June 1998, the Financial Accounting Standards
       Pronouncement       Board issued SFAS No. 133, "Accounting for Derivative
                           Instruments and Hedging Activities" ("SFAS No. 133").
                           SFAS No. 133 requires companies to recognize all
                           derivative contracts as either assets or liabilities
                           in the balance sheet and to measure them at their
                           fair values. 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 assets or liability 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 No. 133, as amended by
                           SFAS No. 137, is effective for all fiscal quarters of
                           fiscal years beginning after June 15, 2000.

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

                           In March 2000, the FASB issued interpretation No 44
                           ("FIN 44"), "Accounting for Certain Transactions
                           Involving Stock Compensation, an Interpretation of
                           APB Opinion No. 25". FIN 44 clarifies the application
                           of APB No. 25 for (a) the definition of employee for
                           purposes of applying APB 25, (b) the criteria for
                           determining whether a plan qualifies as a
                           noncompensatory plan, (c) the accounting consequences
                           of various modifications to the previously fixed
                           stock option or award, and (d) the accounting for an
                           exchange of stock compensation awards in a business
                           combination. FIN 44 is effective July 2, 2000 but
                           certain conclusions cover specific events that occur
                           after either December 15, 1998 or January 12, 2000.
                           The Company has adopted FIN 44 in fiscal 2000 and it
                           did not have a material effect on the Company's
                           financial statements.



                                      F-14
<PAGE>   36


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


       New Accounting      In December 1999, the Securities and Exchange
       Pronouncements      Commission ("SEC") issued Staff Accounting Bulletin
                           No. 101 which summarizes certain of the SEC staff's
                           views in applying generally accepted accounting
                           principles to revenue recognition in financial
                           statements. The Staff Accounting Bulletin is
                           effective for the year beginning October 1, 2000. The
                           initial adoption of this guidance is not anticipated
                           to have a material impact on the Company's results of
                           operations or financial position, however, the
                           guidance may impact the way in which the Company will
                           account for future transactions.

                           In November 2000, the FASB Emerging Issues Task Force
                           (EITF) issued a consensus that requires the
                           remeasurement of original issue discount on debt
                           securities with characteristics similar to the
                           securities issued by the Company in the private
                           placement completed in May 2000. The Company is
                           currently reviewing the impact in the financial
                           statements of adopting this EITF consensus and
                           believes that such adoption will increase the
                           original issue discount by approximately $1,163,000
                           and will result in additional interest expense over
                           the remaining repayment term of the convertible debt
                           security. Upon completion of its review, the Company
                           will record any change in the original issue
                           discount, with a corresponding cumulative adjustment
                           to interest expense, in the first quarter of 2001.


3.     BUSINESS            On July 23, 1999, the Company sold all of the
       ACQUISITIONS        outstanding common stock of CPI to ZeptoMetrix
       AND DIVESTITURES    Corporation for $800,000 in cash, resulting in a gain
                           of $1,489. Included in the accompanying statements of
                           operations for fiscal 1999 are CPI revenues of
                           approximately $744,000 and CPI net losses of
                           approximately $(134,000).



                                      F-15
<PAGE>   37


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


3.     BUSINESS            On September 1, 1998, the Company acquired certain
       ACQUISITIONS        assets, primarily accounts receivable, inventory,
       AND DIVESTITURES    equipment and certain intellectual property, and
       (Continued)         assumed certain liabilities related to the Analyst(R)
                           product line of Dade Behring, Inc. 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. On September 1,
                           2000 the Company was in default of this note and did
                           not make the required principal payment. The present
                           value of the note was $1,250,000 and $1,163,130 at
                           September 30, 2000 and 1999, respectively. At
                           September 30, 2000, the Company owed Dade Behring the
                           $1,250,000 note payable, and in conjunction with a
                           restructured purchase agreement dated June 6, 2000,
                           an additional amount of $158,000. The Company had
                           accounts receivable of $200,000 from Dade Behring. On
                           November 9, 2000, the Company reached an agreement
                           with Dade Behring that provided for the settlement of
                           the $1,250,000 note payable. This settlement called
                           for a payment of $800,000 in cash, a reduction of the
                           outstanding note payable balance by the amount
                           receivable, a reduction of the additional amount by
                           $11,000, a new note for $397,000 and 100,000 shares
                           of Hemagen common stock in lieu of penalties. As part
                           of this agreement, Dade Behring waived the remaining
                           penalties due under the prior agreement. The note for
                           $397,000 provides for interest to accrue at the rate
                           of 10% per annum, 24 monthly payments of $12,810 and
                           a final payment of $134,112 due on November 15, 2002.
                           The common shares were estimated to have a value of
                           $100,000 based on the market price. The Company
                           recorded the market value of the common shares as
                           accrued expense and interest expense in 2000. Under
                           this agreement, Dade Behring continues to provide
                           production services to the Company.

3.     RELATED PARTY       William P. Hales, Redwood Holdings, Inc. and certain
       TRANSACTIONS        of its employees, namely Jerry L. Ruyan, Thomas A.
                           Donelan, and Christopher P. Hendy solicited written
                           consents from shareholders of Hemagen seeking several
                           changes to its Bylaws, the removal of its directors
                           and the election of themselves to the Board of
                           Directors. Following the delivery of consents, the
                           matter was settled pursuant to a Settlement Agreement
                           entered into September 30, 1999.



                                      F-16
<PAGE>   38


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


       Related Party       As part of the Settlement Agreement four of Hemagen's
       Transactions        six directors resigned and were replaced by Jerry L.
       (Continued)         Ruyan, William P. Hales, Thomas A. Donelan, and
                           Christopher P. Hendy. The new Board of Directors then
                           elected Jerry L. Ruyan as Chairman and CEO and
                           William P. Hales as President. Also as part of the
                           Settlement Agreement, the four new directors
                           purchased from the previous management of the Company
                           all of management's shares totaling 777,801 shares at
                           a price approximating market.

                           On October 1, 1999, the Company entered into a
                           consulting agreement with two outside directors,
                           Thomas A. Donelan and Christopher P. Hendy, for
                           consulting services to be provided to the Company
                           with respect to general corporate or strategic
                           matters for a period of one year ended September 30,
                           2000. As of September 30, 2000, the Company had
                           incurred $226,500 in consulting fees of which
                           $183,600 was accrued for Thomas A. Donelan and
                           Christopher P. Hendy.


5.     INVENTORIES         Inventories consist of the following:

<TABLE>
<CAPTION>
                           September 30,                                  2000                     1999
                           ----------------------------- ---------------------------- ----------------------------

<S>                                                                 <C>                      <C>
                           Raw materials                            $2,886,126               $1,802,960
                           Work-in-process                             371,845                  897,813
                           Finished goods                            2,128,497                4,266,106
                           ----------------------------- ---------------------------- ----------------------------
                                                                     5,386,468                6,966,879

                           Less reserves                             1,198,306                1,301,973
                           ----------------------------- ---------------------------- ----------------------------
                                                                    $4,188,162               $5,664,906
                           ----------------------------- ---------------------------- ----------------------------
</TABLE>




                                      F-17
<PAGE>   39

                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


6.     PROPERTY AND        Property and equipment consist of the following:
       EQUIPMENT

<TABLE>
<CAPTION>
                           September 30,                                          2000                   1999
                           ----------------------------------------- ---------------------- ----------------------

<S>                                                                         <C>                    <C>
                           Furniture and equipment                          $7,578,744             $7,250,195
                           Leasehold improvements                              664,241                639,018
                           ----------------------------------------- ---------------------- ----------------------

                                                                             8,242,985              7,889,213
                           Less accumulated depreciation
                             and amortization                                5,163,515              4,116,063
                           ----------------------------------------- ---------------------- ----------------------

                                                                            $3,079,470             $3,773,150
                           ----------------------------------------- ---------------------- ----------------------
</TABLE>

                           Depreciation and amortization expense relating to
                           property and equipment was approximately $1,050,000
                           and $1,230,000 for the years ended September 30, 2000
                           and 1999, respectively.

                           During the fourth quarter of fiscal 1999, the Company
                           wrote down the carrying value of certain equipment
                           held by customers based on the determination that the
                           carrying value of the equipment exceeds the estimated
                           undiscounted future operating cash flows that will be
                           generated by the equipment. A charge of $146,867 for
                           the estimated impairment of the equipment is included
                           in other operating costs in the accompanying
                           consolidated statements of operations for fiscal 1999
                           (see Note 13).




                                      F-18
<PAGE>   40

                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

7.     OTHER ASSETS        Other assets consist of the following:

<TABLE>
<CAPTION>
                           September 30,                                          2000                   1999
                           ----------------------------------------- ---------------------- ----------------------

<S>                                                                           <C>                  <C>
                           Goodwill, net of accumulated
                             amortization of $432,388 and
                             $381,613 for 2000 and 1999,
                             respectively                                     $203,099             $  253,874

                           Loan fees, net of accumulated
                             amortization of $10,658 for
                             2000                                               95,923                      -

                           Deposits                                             22,190                      -
                           ----------------------------------------- ---------------------- ----------------------

                                                                              $321,212             $  253,874
                           ----------------------------------------- ---------------------- ----------------------
</TABLE>


8.     ACCOUNTS PAYABLE
       AND ACCRUED
       EXPENSES
                           Accounts payable and accrued expenses include the
                           following:

<TABLE>
<CAPTION>
                           September 30,                                          2000                   1999
                           ----------------------------------------- ---------------------- ----------------------

<S>                                                                         <C>                    <C>
                           Accounts payable - trade                           $862,299             $1,035,642
                           Accrued closure provision
                           (Note 13)                                           878,906                      -
                           Accrued professional fees                           323,094                276,617
                           Accrued vacation                                    123,785                 81,903
                           Accrued royalties                                   242,876                118,793
                           Accrued other                                       395,613                354,645
                           Accrued severance (Note 13)                               -                251,559
                           ----------------------------------------- ---------------------- ----------------------

                                                                            $2,826,573             $2,119,159
                           ----------------------------------------- ---------------------- ----------------------
</TABLE>



                                      F-19
<PAGE>   41

                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


9.     DEVELOPMENT         The Company entered into an agreement under which the
       AND LICENSE         Company obtained exclusive proprietary rights to
       AGREEMENTS          certain patents, licenses and technology to
                           manufacture, market and sell certain products. Under
                           the agreement, the Company is obligated to make
                           quarterly royalty payments based on a percentage of
                           sales of the defined products through August 31,
                           2004.

                           In addition, the Company entered into a sublicense
                           agreement whereby two license agreements related to
                           certain Analyst(R) products were transferred to the
                           Company. These license agreements, which contain
                           provisions for royalty obligations based on
                           production and net sales of certain products, expire
                           in March 2000 and May 2005. Royalty expense recorded
                           under the royalty agreement and the sublicense
                           agreement amounted to approximately $201,000 and
                           $295,000 in fiscal 2000 and 1999, respectively.


10.    REVOLVING           In August 1998, the Company obtained a revolving line
       LINE OF CREDIT      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
                           $4,250,000 at September 30, 1999, is reduced by
                           $187,500 each quarter through August 31, 2001 (the
                           termination date of the revolving line of credit).
                           Outstanding borrowings, which were due upon demand,
                           were collateralized by the assets of the Company and
                           its subsidiaries. The Agreement provided for monthly
                           interest payments at either the bank's prime lending
                           rate (8.5% at September 30, 1999) plus .25% or the
                           London Interbank Offered Rate ("LIBOR") plus 2.25%.
                           The Agreement required compliance with various
                           covenants including leverage ratio, debt service
                           coverage, minimum profitability and maximum capital
                           expenditures. The Company was not in compliance with
                           these covenants at September 30, 1999. Outstanding
                           borrowings under the revolving line of credit
                           amounted to $3,169,589 at September 30, 1999. On
                           April 20, 2000, the Company repaid the revolving line
                           of with proceeds from a private placement offering.




                                      F-20
<PAGE>   42

                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


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

                           The senior subordinated secured convertible notes
                           mature on April 17, 2005, with no principal payments
                           required until maturity. The notes provide for
                           quarterly interest payments at the annual rate of 8%.
                           The effective interest rate on these notes was
                           calculated to be approximately 58% and an original
                           issue discount of approximately $5,185,000 is being
                           amortized over the term of the notes. The face value
                           of these notes is $6,315,000. As of September 30,
                           2000, the unamortized discount is $5,046,697. The
                           Company estimated the fair value of these warrants
                           using the following assumptions: dividend yield of
                           0%, expected volalility of 79.59% and a risk free
                           rate of approximately 6.51%.

                           The senior subordinated secured convertible notes are
                           convertible into shares of the Company's common stock
                           at a conversion price of $2.50 per share. On the last
                           day of the sixth month following the effectiveness of
                           the registration statement, the conversion price
                           shall be adjusted to equal the lesser of $2.50 per
                           share or the average closing bid price for the common
                           stock as reported by the Nasdaq SmallCap Market for
                           the twenty trading days prior to the last day of the
                           sixth month following the effectiveness of the
                           registration statement, but not less than $2.00 per
                           share. The Company may force the notes to be
                           converted at any time after the common stock has
                           traded above $4.50 for ten consecutive business days.
                           Additionally, the Company may prepay the notes at any
                           time at the full face value of the notes plus accrued
                           and unpaid interest.

                           The warrants issued allow the holder to purchase one
                           share of common stock at an exercise price of $2.75
                           at any time on or after April 30, 2001 through April
                           30, 2002. In conjunction with the sale of the units,
                           2,526,000 warrants were issued. Using the
                           Black-Scholes option pricing model the estimated fair
                           value of the warrants was approximately $1.34 each or
                           $3,384,840 in aggregate. An additional 75,800
                           warrants were issued to the placement agent of the
                           offering at the estimated value of $101,572.



                                      F-21
<PAGE>   43

                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


                           The offering provided for the issue of 1,184,200
                           shares of common stock to the unit holders. These
                           shares were valued at approximately $1.52 per share
                           for a total value of $1,799,789. The placement agent
                           for the offering was issued 75,800 shares at a value
                           of $115,216.


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.


       Common Stock        At September 30, 2000, the following warrants were
       Purchase            outstanding:
       Warrants

<TABLE>
<CAPTION>
                                                              September 30, 2000
                                            --------------------------------------------------------
                                                              Exercise Price              Expiration
                                            Shares               Per Share                   Date
                           --------------------------------------------------------------------------------------

<S>                                                           <C>                   <C>
                                         2,595,755                  $2.75           February 28, 2001
                                         2,601,800                   2.75           April 30, 2002
                           --------------------------------------------------------------------------------------

                           Total         5,197,555
                           --------------------------------------------------------------------------------------
</TABLE>



                                      F-22
<PAGE>   44



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


12.    STOCKHOLDERS'
       EQUITY
       (Continued)

       Common Stock        During fiscal 2000, warrants for the purchase of
       Purchase            99,500 shares at a purchase price of $2.75 per share
       Warrants            were exercised. In fiscal 2000, warrants for the
       (Continued)         purchase of an aggregate of 87,000 shares of common
                           stock at prices ranging from $2.00 to $2.50
                           expired. In fiscal 1999, warrants for the purchase of
                           an aggregate of 559,052 shares of common stock at
                           prices ranging from $2.75 to $3.25 expired.

                           In connection with a 1996 private placement offering,
                           the Company issued 2,595,755 warrants expiring
                           February 28, 2001 and 269,526 Placement Agent
                           Warrants, which expired on February 28, 1999.

       Stock Options       The 1992 Stock Option Plan, as amended, provides for
                           the grant of incentive and nonqualified stock options
                           for the purchase of an aggregate of 1,000,000 shares
                           of the Company's common stock by employees,
                           directors, and consultants of the Company. The Board
                           of Directors is responsible for the administration of
                           the Plan. The 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. Outstanding options that
                           were fully vested under the Plan were 150,150 and
                           477,175 at September 30, 2000 and 1999, respectively,
                           at prices ranging from $1.20 to $2.19.




                                      F-23
<PAGE>   45



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


12.    STOCKHOLDERS'
       EQUITY
       (Continued)

       Stock Options       In conjunction with the closure and wind down of the
       (Continued)         Waltham, Massachusetts facility (more fully described
                           in Note 13) an employee stock option pool of 190,000
                           shares was established. This pool provides an
                           aggregate of 190,000 options to purchase 190,000
                           shares of the Company's common stock at an exercise
                           price of $2.00. This pool will be shared equally
                           among the Waltham-based employees that remain with
                           the Company until they are terminated by the Company
                           upon the closure of the Waltham, Massachusetts
                           facility. The options, which were not issued under
                           the Plan, expire on January 15, 2004 and become
                           exercisable on January 15, 2001.


                           On September 30, 1999, the Company's Board of
                           Directors awarded options to the Company's President
                           and certain directors to purchase an aggregate of
                           1,732,014 shares of the Company's common stock at an
                           exercise price of $1.36 per share which represented
                           the fair value of the common stock at that date. The
                           director's options were granted to Redwood Holdings,
                           Inc. which is a 100% owned subsidiary of an employee
                           stock ownership plan, the beneficial owners are Jerry
                           Ruyan (49.9%), Thomas A. Donelan (24.9%), and
                           Christopher P. Hendy (24.9%). The options were
                           granted pursuant to stockholder authorization
                           received during a consent solicitation which resulted
                           in the replacement of certain members of the
                           Company's senior management and Board of Directors
                           (see Note 13). The options, which were not issued
                           under the Plan, expire on September 30, 2009 and
                           become exercisable on March 31, 2001. In the event
                           that the market value of the Company's common stock
                           exceeds $5.00 per share for 20 consecutive days prior
                           to March 31, 2001, or a change in control, as
                           defined, the options become immediately exercisable.



                                      F-24
<PAGE>   46


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


12.    STOCKHOLDERS'
       EQUITY
       (Continued)

       Stock Options       Changes in all options outstanding are summarized as
       (Continued)         follows:

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

<S>                                                                            <C>                  <C>
                           BALANCE, September 30, 1998                           566,925                  1.64

                              Granted                                          1,874,014                  1.38
                              Cancelled or expired                              (231,750)                 1.65
                           --------------------------------------------------------------------------------------

                           BALANCE, September 30, 1999                         2,209,189                 $1.42

                              Granted                                            475,000                  1.59
                              Exercised                                         (226,700)                 1.50
                              Cancelled or expired                              (170,325)                 1.53
                           --------------------------------------------------------------------------------------

                           BALANCE, September 30, 2000                         2,287,164                 $1.44
                           --------------------------------------------------------------------------------------
</TABLE>


                           As of September 30, 2000, options for 150,150 shares
                           were exercisable at prices ranging from $1.20 to
                           $2.19 per share.

                           The following table summarizes information about
                           stock options outstanding at September 30, 2000:




                                      F-25
<PAGE>   47

                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


12.    STOCKHOLDERS'
       EQUITY
       (Continued)

       Stock Options
         (Continued)

<TABLE>
<CAPTION>
                                                 Options Outstanding
                                                 -------------------
                                                                            Weighted-
                                                                             Average
                                                       Number               Remaining
                                                   Outstanding at          Contractual            Weighted
                            Range of Exercise       September 30,              Life               Average
                                  Prices                2000                 (years)           Exercise Price
                           --------------------- --------------------- -------------------- ---------------------
<S>                                               <C>                      <C>                <C>
                                  2.19                   64,150              1.6                   $2.19
                                  2.00                  206,000              3.4                    2.00
                                  1.75                    8,000              2.0                    1.75
                                  1.05                  100,000              4.7                    1.65
                                  1.50                   10,000              4.8                    1.50
                                  1.38                   10,000              5.0                    1.38
                                  1.36                1,732,014              9.0                    1.36
                                  1.20                   77,000              2.3                    1.20
                                  1.00                   30,000              4.3                    1.00
                                   .97                   50,000              4.3                    0.97
                           --------------------- --------------------- -------------------- ---------------------

                              $0.97 to $2.19          2,287,164              7.7                   $1.44
                           --------------------- --------------------- -------------------- ---------------------

<CAPTION>
                                                            Options Exercisable
                                                            -------------------
                                Range of Exercise          Number Exercisable at            Weighted Average
                                     Prices                 September 30, 2000               Exercise Price
                           --------------------------- ------------------------------ ---------------------------

<S>                                                        <C>                        <C>
                                       $2.19                      64,150                        $2.19
                                        2.00                       1,000                         2.00
                                        1.75                       8,000                         1.75
                                        1.20                      77,000                         1.20
                           --------------------------- ------------------------------ ---------------------------
                                 $1.20 to $2.19                  150,150                        $1.66
                           --------------------------- ------------------------------ ---------------------------
</TABLE>



                                      F-26
<PAGE>   48



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


12.    STOCKHOLDERS'
       EQUITY
       (Continued)

       Stock Options       The Company accounts for its stock-based compensation
       (Continued)         plan using the intrinsic value method. Accordingly,
                           no compensation cost has been recognized for its
                           stock option plan. Had compensation costs 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 income (loss) per common share
                           would have been adjusted to the pro forma amounts
                           indicated below:

<TABLE>
<CAPTION>
                           Years ended September 30,                                   2000                1999
                           --------------------------------------------------------------------------------------

<S>                                                     <C>                  <C>                 <C>
                           Net income (loss)            As reported          $   (5,130,136)     $   (5,160,355)
                                                        Pro forma            $   (5,218,792)     $   (5,175,378)

                           Income (loss) per
                             common share:              As reported:
                                                          Basic                        (.53)               (.66)
                                                          Diluted                      (.53)               (.66)
                                                        Pro forma:
                                                          Basic                        (.54)               (.67)
                                                          Diluted                      (.54)               (.67)
</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 2000 and 1999: dividend yield of 0% for
                           both years and expected volatility of 51.49% to
                           57.57% for 2000 and 45.8% for 1999, risk free rates
                           ranging from 5.42% to 6.19% in 2000 and 4.45% to
                           5.77% in 1999, and expected lives of 5 years for 2000
                           and 1999. The weighted average fair value of options
                           granted in fiscal 2000 and 1999 was $.66 and $.78 per
                           share, respectively.



                                      F-27
<PAGE>   49


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


12.    STOCKHOLDERS'
       EQUITY
       (Continued)

       Stock Rights        During fiscal 1999, the Company's Board of Directors
       Purchase            implemented a Stock Purchase Rights Agreement (the
       Agreement           "Agreement"). Under the Agreement, as amended, the
                           Company declared a dividend of one common share
                           purchase right (a "Right") for each share of the
                           Company's outstanding common stock as of February 10,
                           1999. Each Right entitles the holder to purchase from
                           the Company $4.00 worth of Company common stock at a
                           per-share price equal to 50 percent of the current
                           market price. The rights become exercisable only if a
                           person or group, as defined, acquires beneficial
                           ownership of 15 percent or more of the Company's
                           outstanding common stock or announces a tender offer
                           that would result in beneficial ownership of 15
                           percent or more of the Company's outstanding common
                           stock. Per a Board of Directors Resolution dated
                           September 30, 1999, William P. Hales, Jerry L. Ruyan,
                           Thomas A. Donelan, Christopher P. Hendy and Redwood
                           Holdings, Inc. are exempt under the Agreement. The
                           rights, which expire on January 27, 2009, are
                           redeemable in whole, but not in part, at the
                           Company's option at $0.001 per Right at any time
                           prior to the earlier of ten days after public
                           announcement that a person or group has acquired
                           beneficial ownership of 15% or more of the Company's
                           outstanding common stock or the expiration date of
                           the Rights.

       Reserved Shares     At September 30, 2000, the Company has reserved
                           13,205,059 shares of common stock for issuance upon
                           exercise of outstanding common stock options,
                           warrants and purchase rights.



                                      F-28
<PAGE>   50



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


13.    OTHER OPERATING
       COSTS               Other operating costs consist of the following:

<TABLE>
<CAPTION>
                           Years ended September 30,                              2000                   1999
                           ----------------------------------------- ---------------------- ----------------------

<S>                                                                           <C>                  <C>
                           Severance pay related to facility
                             closure                                          $361,361               $251,559
                           Charges related to equipment and
                             leasehold improvement
                             provisions required for facility
                             closure                                           191,111                      -
                           Charge for impairment of
                             goodwill (Note 7)                                       -              1,000,000
                           Charge for impairment of
                             equipment and leasehold
                             improvements (Note 6)                                   -                146,867
                           Other charges related to facility
                             closure                                           326,434                      -
                           Charges related to proxy contest                          -                544,851
                           ----------------------------------------- ---------------------- ----------------------

                                                                              $878,906             $1,943,277
                           ----------------------------------------- ---------------------- ----------------------
</TABLE>


                           On April 19, 2000, the Company announced a plan to
                           consolidate operations and close the Company's
                           Waltham, Massachusetts facility. The facility had
                           served as the corporate office in addition to the
                           manufacturing facility for blood-banking and Elisa
                           products. In conjunction with this plan to close the
                           facility, the Company recorded charges for severance
                           costs, write down of equipment and leasehold
                           improvements, lease obligations and moving costs
                           incurred to date. A provision of $361,361 has been
                           recognized for severance payments required for those
                           Waltham-based employees that will be terminated upon
                           the closure of the facility. Charges of $191,111 were
                           recognized to provide for the write off of equipment
                           that will no longer be needed as a result of facility
                           closure and leasehold improvements that will be
                           abandoned.



                                      F-29
<PAGE>   51


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


13.    OTHER OPERATING     Other charges related to the closure of the Waltham,
       COSTS               Massachusetts facility were $326,434 and related
       (Continued)         primarily to a provision for remaining lease
                           obligations. Included in the total provision is
                           $75,000 related to the estimated cost of returning
                           the facility to its original condition. Management is
                           currently negotiating with the landlord of the main
                           facility and potential sub-tenants to assume this
                           liability. These adjustments were recorded in the
                           fourth quarter of fiscal 2000.

                           In connection with the closure of the Waltham
                           facility management has decided to terminate a
                           contract to provide diagnostic test kits to a major
                           customer. This contract has a termination date of
                           December 22, 2004. The customer has agreed in
                           principle to release the Company from its obligations
                           under this contract. The customer and its new
                           contract manufacturer have agreed in principle to
                           purchase the Company's inventory related to these
                           products at a cost lower than the Company's cost. In
                           2000, the Company recorded an inventory reserve of
                           approximately $48,000 related to the sale of this
                           inventory. This adjustment was recorded in the fourth
                           quarter of fiscal 2000.

                           During 1999, in connection with a consent
                           solicitation that resulted in the replacement of
                           certain members of the Company's senior management
                           and Board of Directors, the Company recorded charges
                           of $544,851, which consist primarily of professional
                           fees incurred, and an additional $251,559 of
                           severance pay for former senior management. The above
                           charges were recorded in the fourth quarter of fiscal
                           1999. Also, during the fourth quarter of fiscal 1999,
                           the Company recorded an inventory reserve of
                           approximately $1,078,000 resulting from management's
                           decision to discontinue a specific product and from
                           the identification of certain products that are
                           expected to expire before they can be sold. This
                           fourth quarter adjustment is included in cost of
                           product sales in the accompanying consolidated
                           statements of operations for fiscal 1999.




                                      F-30
<PAGE>   52



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


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

<TABLE>
<CAPTION>
                           Years ended September 30,                               2000               1999
                           --------------------------------------------------------------------------------

<S>                                                                        <C>                <C>
                           Domestic                                        $ (5,147,118)      $ (4,886,024)
                           Foreign                                               16,982           (274,331)
                           --------------------------------------------------------------------------------

                                                                           $ (5,130,136)      $ (5,160,355)
                           --------------------------------------------------------------------------------
</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,                               2000               1999
                           ---------------------------------------------------------------------------------

<S>                                                                        <C>                <C>
                           Federal tax (credit) at statutory rate          $ (1,744,247)      $ (1,754,521)
                           Operating loss generating no
                             current tax benefit                              1,744,247          1,754,521
                           ---------------------------------------------------------------------------------

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




                                      F-31
<PAGE>   53


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


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

<TABLE>
<CAPTION>
                           September 30,                                              2000               1999
                           ------------------------------------------------------------------------------------

<S>                                                                          <C>                <C>
                           Net operating loss carryforwards                  $   3,502,000      $   2,539,000
                           Inventory reserve                                       396,000            443,000
                           Research and development and
                             investment tax credit carryforwards                   106,000            100,000
                           Closure Provision                                       247,000                  -
                           Other                                                    70,000            141,000
                           ------------------------------------------------------------------------------------

                           Total deferred tax assets                             4,321,000          3,223,000

                           Deferred tax asset valuation
                             allowance                                          (4,321,000)        (3,223,000)
                           ------------------------------------------------------------------------------------

                           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, 2000, the Company has approximately
                           $10,300,000, $7,732,000 and $716,000 of federal,
                           state, and foreign net operating losses,
                           respectively, available to offset future taxable
                           income, which expire on various dates through 2020.
                           At September 30, 2000, the Company has $106,000 of
                           federal research and development tax credit
                           carryforwards and $62,000 of state research and
                           development and investment tax credit carryforwards
                           available to offset future income taxes payable,
                           which expire on various dates through 2010. Ownership
                           changes as defined in the Internal Revenue Code may
                           limit the amount of net operating loss and tax credit
                           carryforwards that may be utilized annually.



                                      F-32
<PAGE>   54


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


15.    NET INCOME          The Company follows Statement of Financial Accounting
       PER SHARE OF        Standards No. 128 ("SFAS No. 128"), Earnings per
       COMMON STOCK        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, 2000 and 1999 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,                                               2000                1999
                           --------------------------------------------------------------------------------------

<S>                                                                               <C>                 <C>
                           Denominator for basic income
                              per share:
                              Weighted average common
                                shares outstanding                                8,587,739           7,780,123
                           Potential dilative common shares
                              Stock options                                               -                   -
                              Stock warrants                                              -                   -
                           --------------------------------------------------------------------------------------

                           Denominator for diluted income
                             per share                                            8,587,739           7,780,123
                           --------------------------------------------------------------------------------------
</TABLE>


                           The following table summarizes securities that were
                           outstanding as of September 30, 2000 and 1999 but not
                           included in the calculation of diluted net loss per
                           share because such shares are antidilutive:

<TABLE>
<CAPTION>
                           September 30,                                               2000                1999
                           --------------------------------------------------------------------------------------

<S>                                                                               <C>                   <C>
                           Stock options                                          2,287,164             192,025
                           Stock warrants                                         5,197,555           3,051,781
</TABLE>




                                      F-33
<PAGE>   55


                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


16.    SIGNIFICANT SALES   In fiscal 2000 and 1999, the Company derived revenues
       AND CONCENTRATION   from a single customer totaling approximately
       OF CREDIT RISK      $1,531,000, and $4,518,000, respectively, which was
                           14% and 31% of total sales, respectively. Revenues
                           derived from export sales amounted to approximately
                           $4,492,000, or 41% of total sales, in 2000 and
                           $4,605,000, or 32% of total sales, in 1999. Export
                           sales to Europe were approximately $2,014,000, or 18%
                           of total sales, in 2000 and $2,139,000, or 15% of
                           total sales, in 1999. Export sales to South America
                           were approximately $1,321,000, or 12% of total sales,
                           in 2000 and $1,647,000, or 15% of total sales, in
                           1999.


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


<TABLE>
<CAPTION>
                                                                 United
                           Origin of revenues                    States             Brazil        Consolidated
                           -------------------------------------------------------------------------------------

<S>                                                          <C>               <C>                <C>
                           SEPTEMBER 30, 2000:
                              Revenues                       $9,952,578         $1,043,026        $  10,995,604
                              Long-lived assets               3,325,585             75,097            3,400,682
                           -------------------------------------------------------------------------------------


                           SEPTEMBER 30, 1999:
                              Revenues                     $ 13,460,401        $ 1,128,338        $  14,588,739
                              Long-lived assets               3,875,322            151,702            4,027,024
                           -------------------------------------------------------------------------------------
</TABLE>



18.    COMMITMENTS         The Company leases certain office and manufacturing
                           facilities under noncancelable operating leases
                           expiring through 2007. In addition, the Company
                           leases an office and manufacturing facility under a
                           cancelable operating lease that has no future minimum
                           rental commitments. Future minimum lease commitments
                           under the noncancelable operating leases are
                           approximately as follows:




                                      F-34
<PAGE>   56



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================


18.    COMMITMENTS
       (Continued)

       Leases

<TABLE>
<CAPTION>
                           Years ending September 30,
                           --------------------------------------------------------------
<S>                                                               <C>
                           2001                                   $  506,915
                           2002                                      449,459
                           2003                                      143,850
                           2004                                      145,563
                           2005                                      152,413
                           Thereafter                                282,563
                           ---------------------------------- ---------------------------

                                                                  $1,680,763
                           ---------------------------------- ---------------------------
</TABLE>

                           Rent expense approximated $585,000 and $570,000 in
                           2000 and 1999, respectively.


       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 $67,000 and $100,000
                           in fiscal 2000 and 1999, respectively.


       Minimum Purchase    During 1999, the Company entered into an agreement
       Obligation          whereby it is required to purchase a minimum amount
                           of products from a supplier. At September 30, 2000,
                           the Company is obligated to purchase at least
                           $437,500 in product at prevailing market prices
                           before August 1, 2001.




                                      F-35
<PAGE>   57



                                                       HEMAGEN DIAGNOSTICS, INC.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

================================================================================
18.    COMMITMENTS
       (Continued)


       Employment          In May 1999, the Company entered into employment
       Contracts           agreements with certain key executives. As of
                           September 30, 2000, one of the agreements is still in
                           effect. The agreement provides for an initial
                           two-year term, with an aggregate base salary of
                           $110,000 for fiscal 2001 and performance bonuses, as
                           defined. Upon expiration of the initial two-year
                           term, the agreement automatically renews for a
                           successive two-year period unless written notice of
                           non-renewal is tendered by either the executives or
                           the Company six months prior to the scheduled
                           expiration date. The Company has tendered this notice
                           of non-renewal for fiscal 2001 and the contract will
                           expire in May 2001. The agreements further provide
                           that, in the event the Company terminates the
                           executives for defined reasons, the Company would be
                           obligated to make one-time severance payments equal
                           to the executives' annual base salaries.

19.    SUPPLEMENTAL
       DISCLOSURE OF CASH
       FLOWS INFORMATION

<TABLE>
<CAPTION>
                           September 30,                                               2000                1999
                           --------------------------------------------------------------------------------------

<S>                                                                          <C>                 <C>
                           Cash paid for interest                            $      402,192      $      353,256
                           Disclosure of non-cash investing
                             and financing activities:
                               Fair value of warrants issued
                                 to non-employees                                   486,344                   -

                           --------------------------------------------------------------------------------------
</TABLE>





                                      F-36