- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009.

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO ________________.

Commission File No. 1-11700

HEMAGEN DIAGNOSTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-2869857
State of Organization	IRS Employer I.D.

9033 Red Branch Road, Columbia, Maryland 214045-2105

(Address of principal executive offices)

(443) 367-5500

(Registrant’s telephone number, including area code)

Indicate by checkmark 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, and (2) has been subject to such filing requirements for the past 90 days.

YES X NO ____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES NO ____

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	x

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X_

As of April 30, 2009, the registrant had 15,240,281 shares of Common Stock $.01 par value per share outstanding.

HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

INDEX

			Page Number
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets; March 31, 2009 (unaudited) and September 30, 2008	3

		Consolidated Statements of Operations; Three and Six Months Ended March 31, 2009 and 2008 (unaudited)	5

		Consolidated Statements of Cash Flows; Six Months Ended March 31, 2009 and 2008 (unaudited)	6

		Notes to Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	13

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

	Item 4.	Controls and Procedures	17

PART II .	OTHER INFORMATION

	Item 2.	Unregistered Sales of Equity Securities and Use Of Proceeds	18

	Item 6.	Exhibits	18

SIGNATURES			19

CERTIFICATIONS

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

Certain statements contained in this report that are not historical facts constitute forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbors created by that Act. Forward looking statements may be identified by words such as “estimates”, “anticipates”, “projects”, “plans”, “expects”, “intends”, “believes”, “should” and similar expressions or the negative versions thereof and by the context in which they are used. Such statements, whether express or implied, are based on current expectations of the company and speak only as of the date made. 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. Hemagen undertakes no obligation to update any forward-looking statements as a result of new information or to reflect events or circumstances after the date on which they are made or otherwise.

Statements concerning the establishments of reserves and adjustments for dated and obsolete products, expected financial performance, on-going business strategies and possible future action which Hemagen intends to pursue to achieve strategic objectives constitute forward-looking information. All forward looking statements, including those relating to the sufficiency of such charges, implementation of strategies and the achievement of financial performance are each subject to numerous conditions, uncertainties, risks and other factors. Factors which could cause actual performance to differ materially from these forward-looking statements, include, without limitation, management’s analysis of Hemagen’s assets, liabilities and operations, the failure to sell date–sensitive inventory prior to its expiration, competition, new product development by competitors which could render particular products obsolete, the inability to develop or acquire and successfully introduce new products or improvements of existing products, recessionary pressures on the economy and the markets in which our customers operate, costs and difficulties in complying with the laws and regulations administered by the United States Food and Drug Administration,

changes in the relative strength of the U.S. dollar and Brazilian Reals, unfavorable political or economic developments in Brazilian operations, the ability to assimilate successfully product acquisitions and other factors disclosed in our reports on Forms 10-K, 10-Q and 8-K filed with the SEC.

PART I - Financial Information

Item 1. - Financial Statements

HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2009 (unaudited)		September 30, 2008
ASSETS

CURRENT ASSETS:
Cash	$	90,438	$	98,799
Accounts receivable, less allowance for doubtful accounts of $64,800 and $62,485 at March 31, 2009 and September 30, 2008, respectively		678,432		866,306
Inventories, net		1,877,876		2,037,049
Current portion of note receivable		210,000		210,000
Prepaid expenses and other current assets		135,001		304,038
Total current assets		2,991,747		3,516,192



PROPERTY AND EQUIPMENT; net of accumulated depreciation and amortization of $5,967,580 and $5,970,504 at March 31, 2009 and September 30, 2008, respectively		583,839		697,071

OTHER ASSETS:

Long term portion of note receivable		350,000		455,000
Other assets		59,825		98,057
Total other assets		409,825		553,057

Total Assets	$	3,985,411	$	4,766,320

HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

LIABILITIES AND STOCKHOLDERS’ DEFICIT	March 31, 2009 (unaudited)			September 30, 2008
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	927,588		$	1,127,599
Revolving line of credit		475,000			500,000
Deferred revenue		120,023			102,680
Note Payable – Itau Bank		64,277			32,257
Senior subordinated secured convertible notes, net of unamortized discount of $31,868 and $70,587 as of March 31, 2009 and September 30, 2008, respectively		4,017,982			3,979,263
Total Current Liabilities		5,604,870			5,741,799

LONG TERM LIABILITIES:
Note Payable – Itau Bank, net of current portion		6,912			119,466
Total Long Term Liabilities		6,912			119,466
Total liabilities		5,611,782			5,861,265

STOCKHOLDERS’ DEFICIT

Preferred stock, $0.01 par value - 1,000,000 shares authorized; none issued		--			--
Common stock, $.01 par value - 30,000,000 shares authorized; 15,340,281 and 15,325,281 issued and outstanding as of March 31, 2009 and September 30, 2008, respectively		153,402			153,252
Additional paid-in capital		22,874,047			22,867,507
Accumulated deficit		(24,297,348	)		(23,925,977	)
Accumulated other comprehensive loss- currency translation loss		(266,835	)		(100,090	)
Less treasury stock at cost; 100,000 shares at March 31, 2009 and September 30, 2008, respectively .		(89,637	)		(89,637	)
Total Stockholders’ Deficit		(1,626,371	)		(1,094,945	)
Total Liabilities and Stockholders’ Deficit	$	3,985,411		$	4,766,320

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

HEMAGEN DIAGNOSTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended						Six Months Ended
	March 31, 2009			March 31, 2008			March 31, 2009			March 31, 2008
Net Sales	$	1,300,624		$	1,793,465		$	2,686,974		$	3,333,311
Cost of Sales		775,903			1,015,305			1,653,549			1,903,941
Gross Profit		524,721			778,160			1,033,425			1,429,370
Operating Expenses:
Selling, general and administrative		572,963			590,882			1,194,184			1,167,246
Research and development		16,437			50,515			39,394			91,593
Total operating expenses		589,400			641,397			1,233,578			1,258,839
Total operating income (loss) from continuing operations		(64,679	)		136,763			(200,153	)		170,531
Other income (expenses):
Interest expense (net), including $19,517 and $17,626 for the three months ended March 31 2009 and 2008, respectively and $38,719 and $36,197 for the six months ended March 31, 2009 and 2008, respectively of debt discount amortization.		(98,418	)		(87,659	)		(198,264	)		(176,069	)
Other income		449			5,995			400			6,347
Gain on sale of assets		--			--			43,117			--
Total other expense		(97,969	)		(81,664	)		(154,747	)		(169,722	)

Net income (loss), before income taxes, from continuing operations		(162,648	)		55,099			(354,900	)		809

Income Tax expense		223			27,030			16,471			56,578
Net income (loss), from continuing operations		(162,871	)		28,069			(371,371	)		(55,769	)

Income from Discontinued Operations (includes a gain on sale of assets in the amount of $1,094,817 for the six months ended March 31, 2008)		--			--			--			856,446
Net income (loss):	$	(162,871	)	$	28,069		$	(371,371	)	$	800,677
Other comprehensive loss, net of tax:
Foreign currency translation adjustments		19,849			13,393			(166,745	)		36,814
Comprehensive income (loss):	$	(143,022	)	$	41,462		$	(538,116	)	$	837,491

Earnings (loss) per share, from continuing operations - Basic	$	(0.01	)	$	0.00		$	(0.02	)	$	0.00
Earnings (loss) per share, from continuing operations - Diluted	$	(0.01	)	$	0.00		$	(0.02	)	$	0.00
Earnings (loss) per share, from discontinued operations - Basic	$	0.00		$	0.00		$	0.00		$	0.05
Earnings (loss) per share, from discontinued operations - Diluted	$	0.00		$	0.00		$	0.00		$	0.05
Earnings (loss) per share - Basic	$	(0.01	)	$	0.00		$	(0.02	)	$	0.05
Earnings (loss) per share - Diluted	$	(0.01	)	$	0.00		$	(0.02	)	$	0.05
Weighed average common shares used in calculation of earnings (loss) per share - Basic		15,234,039			15,225,281			15,233,344			15,225,281
Weighed average common shares used in calculation of earnings (loss) per share – Diluted		15,234,039			15,225,281			15,233,344			15,225,281

HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended March 31,
Cash flows from operating activities:	2009			2008
Net Income (Loss)	$	(371,370	)	$	800,677
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		74,066			28,842
Amortization of debt discount		38,719			36,198
(Gain) on sale of assets		(43,117	)		(838,907	)
Provision for Bad Debts		30,841			(21,028	)
Stock Based Compensation		6,690			3,225
Changes in operating assets and liabilities:
Accounts receivable		157,033			(116,444	)
Prepaid expenses and other current assets		169,036			50,123
Inventories		159,173			540,275
Accounts payable and accrued expenses		(200,011	)		(183,011	)
Other assets		38,232			(3,680	)
Deferred revenue		17,342			8,592
Net cash provided by operating activities		76,634			304,862

Cash flows from investing activities:
Purchase of property and equipment		(111,848	)		(322,843	)
Proceeds from sale of assets		51,805			4,090
Payments Received on Notes Receivable		105,000			70,000
Net cash provided by (used in) investing activities		44,957			(248,753	)

Cash flows from financing activities:
Net (payments) borrowings on Line of Credit		(25,000	)		(56,769	)
Borrowings on Notes – Itau Bank		(80,534	)		181,964
Net cash provided by (used in) financing activities		(105,534	)		125,195

Effects of foreign exchange rate		(24,418	)		27,110

Net increase (decrease) in cash and cash equivalents		(8,361	)		208,414

Cash and cash equivalents at beginning of period		98,799			6,592

Cash and cash equivalents at end of period	$	90,438		$	215,006
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	185,805		$	164,211

HEMAGEN DIAGNOSTICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOR THE SIX MONTHS ENDED MARCH 31, 2009 and 2008

NOTE 1 – BASIS OF PRESENTATION

Hemagen Diagnostics, Inc. (“Hemagen” or the “Company”) has prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission instructions to Form 10-Q. These financial statements should be read together with the financial statements and notes in the Company’s 2008 Annual Report on Form 10-KSB filed with the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying financial statements reflect all adjustments and disclosures, which, in the Company’s opinion, are necessary for fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of the entire year.

NOTE 2- RECENT ACCOUNTING PRONOUNCEMENTS

Financial Accounting Standards No. 157 (“FAS 157”) . In September 2006, the Financial Accounting, Standards Board (“FASB”) issued FAS 157, “Fair Value Measurements.” FAS 157 defines fair values establishes a framework for measuring fair value in generally accepted accounting principles (GAAP) and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of FAS 157 to significantly affect its consolidated financial condition or results of operations.

Financial Accounting Standards No 159 (“FAS 159 ”). In February 2007, the FASB issued FAS 159 , “ The Fair Value Option for Financial Assets and Financial Liabilities – Including the amendment of FASB Statement 115, ” which provides companies with an option to measure eligible financial assets and liabilities in their entirety at fair value. The fair value option may be applied instrument by instrument, and may be applied only to entire instruments. If a company elects the fair value option for an eligible item, changes in the items fair value must be report as unrealized gains and losses in earnings at each subsequent reporting date. FAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of FAS 159 to significantly affect its consolidated financial condition or results of operations.

SFAS No. 141(R), “Business Combinations–a Replacement of FASB Statement No. 141” (SFAS No. 141 (R)) In December 2007, the FASB issued SFAS 141 (R), “Business Combinations.” The standard changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for preacquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring of cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. The Company does not expect the adoption of SFAS 141(R) to significantly affect its consolidated financial statements.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements–an Amendment of ARB No. 51” (SFAS No. 160) In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 will change the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. This statement is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. Upon adoption, SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. The Company does not expect the adoption of SFAS 160 to significantly affect its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (FSP), FAS 142-3, “ Determination of the Useful Life of Intangible Assets, ” which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “ Goodwill and Other Intangible Assets. ” This FSP shall be effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company will ascertain its impact, if any, during the three-month period ending March 31, 2009.

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities–an Amendment of FASB Statement No. 133” (SFAS No. 161) During March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities ” (“SFAS 161”). SFAS 161 requires entities to provide enhanced disclosures about how and why derivative instruments are used, how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its related interpretations, and how derivative instruments and related hedged items affect financial position, financial performance, and cash flows. The Company is currently evaluating the impact, if any, of adopting SFAS 161.

SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162) In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles ” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. This statement shall be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. ” The Company is currently evaluating the impact of adopting SFAS 162 on its consolidated financial statements .

NOTE 3- EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per common share are computed based upon the weighted average number of common shares outstanding during the three and six months ended March 31, 2009 and 2008. Diluted earnings per common share is computed based on common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents consisting of stock options and convertible debentures. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock and if-converted method based on the Company’s average stock price for the period.

The following table sets forth the computation of basic and diluted earnings per share for the three and six month periods ended March 31, 2009 and 2008.

	Three Months Ended March 31,					Six Months Ended March 31,
	2009			2008		2009			2008

Numerator:
Net (loss) income	$	(162,871	)	$	28,069	$	(371,371	)	$	800,677

Denominator:
Weighted –average shares outstanding		15,234,039			15,225,281		15,233,344			15,225,280
Effect of dilutive shares		--			--		--			--
Denominator for diluted earnings per share		15,234,039			15,225,281		15,233,344			15,225,280

Basic Earnings per share	$	(0.01	)	$	0.00	$	(0.02	)	$	0.05
Diluted Earnings per share	$	(0.01	)	$	0.00	$	(0.02	)	$	0.05

Diluted net income per share does not include the effect of the following common stock equivalents related to outstanding convertible debentures and stock purchase options as their effect would be antidilutive:

	Three Months Ended March 31,				Six Months Ended March 31,
	2009		2008		2009		2008

Convertible notes		5,399,800		5,399,800		5,399,800		5,399,800
Options to purchase common stock		2,465,903		2,314,014		2,465,294		2,314,014
Total antidilutive instruments		7,865,703		7,713,814		7,865,094		7,713,814

NOTE 4 – STOCK BASED COMPENSATION

The following table summarizes the Company’s stock option activity for the six months ended March 31, 2009:

	Shares			Weighted average exercise price		Weighted average life

Options outstanding – October 1, 2008		2,464,014		$	1.05		2.36
Granted		15,000			0.16		4.69
Exercised		--			--		--
Forfeited, cancelled or expired		(16,000	)		0.19		3.78
Options outstanding – March 31, 2009		2,463,014		$	1.05		1.87
Options exercisable – March 31, 2009		2,304,347		$	1.10		1.77

Under SFAS No. 123R, “Share-Based Payment” we use the Black-Scholes option pricing model to determine the fair value of our awards on the date of grant. The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing formula that uses the assumptions noted in the table and discussion that follows:

	Three Months Ended March 31,		Six Months Ended March 31,
	Three Months Ended March 31,		Six Months Ended March 31,
	2009	2008	2009	2008
Dividend yield	--	--	--	--
Expected volatility	105.2%	95.10%	95.1% - 105.25%	95.10%
Risk-free interest rate	1.67%	2.46% - 3.16%	1.67% - 2.45%	2.46% - 3.16%
Expected life in years	1.5	5	1.5	5

We have elected to incur stock-based compensation expense over the requisite service period. We have estimated forfeitures and incur expense on shares we expect to vest.

As of March 31, 2009, there was $17,492 of unrecognized compensation cost related to share-based compensation arrangements that we expect to vest. This cost will be fully incurred within 5 years. The options both issued and exercisable as of March 31, 2009 have no intrinsic value.

NOTE 5 - INVENTORIES

Inventories at March 31, 2009 and September 30, 2008 consist of the following:

	March 31, 2009			September 30, 2008

Raw Materials	$	1,315,085		$	1,385,253
Work-in-process		211,690			159,903
Finished goods		961,336			1,018,609
		2,488,111			2,563,765
Less reserves		(610,235	)		(526,716	)
Inventories, net	$	1,877,876		$	2,037,049

NOTE 6 - LINE OF CREDIT

The Company has a revolving line of credit with a bank for the purpose of financing working capital needs as required which was renewed effective March 31, 2009. The line of credit facility provides for borrowings up to $500,000 at an interest rate of Prime Rate plus .75%, with an interest rate floor of 5.5% and is due April 1, 2010. If however, Hemagen fails to renew or recapitalize its existing bond indebtedness by September 30, 2009, the final and absolute due date will be September 30, 2009. Maximum borrowings under the loan are based on the domestic receivables and inventory of the Company. The line of credit facility has a first lien on all assets of the Company. As of March 31, 2009, the outstanding balance on the line of credit was $475,000 with an effective interest rate of 4.00%. As of March 31, 2009, the Company was in compliance with its debt covenants.

NOTE 7 – SENIOR SUBORDINATED SECURED CONVERTIBLE NOTES

The Notes pay interest quarterly at an annual rate of 8%, are convertible at the option of the holder at $0.75 per share into shares of the Company’s common stock and mature September 30, 2009. The Secured Indebtedness shall be secured by the Security Interest in the Collateral, and shall be senior to all other indebtedness of the Obligors. Notwithstanding the foregoing, the Security Interest shall be subordinate to (i) a credit facility that is equal to or less than Three Million Dollars ($3,000,000), (ii) any secured financing that is greater than

Two Million Dollars ($2,000,000), provided that (A) the Obligors provide the Holder twenty (20) business days’ written notice of such secured financing, and (B) all of the funds raised in connection with such secured financing shall be used to reduce, on a pro rata basis, the Principal Amount and accrued and unpaid interest owed on the 2009 Notes and (iii) real estate financing that the Obligors may incur in the future for the purchase of a corporate facility provided that the annual mortgage payments are less than the rent expense that the Obligors paid in 2004 for its leased facilities. The Company has the right to require conversion of the Notes if the Company’s common stock has traded at or above $1.25 per share for a consecutive twenty-day trading period. The Company may also prepay the Notes at their full face amount plus any accrued and unpaid interest. At March 31, 2009 and September 30, 2008, the unamortized discount of these notes was $31,868 and $70,587, respectively.

On September 30, 2009 these Notes in the amount of $4,049,850 become due and payable. Hemagen does not have sufficient cash to repay these Notes and therefore expects to restructure the debt by, amongst other things, extending the maturity date of the notes. However, Hemagen can give no assurances that it will be able to refinance or repay these notes.

NOTE 8 – GEOGRAPHICAL INFORMATION

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

The following table sets forth revenue for the periods reported, from continuing operations, and assets by geographic location for the six months ended March 31, 2009 and 2008.

	United* States		Brazil		Consolidated
March 31, 2009:
Revenues		1,634,437		1,052,537		2,686,974
Long-lived assets		590,458		403,206		993,664

March 31, 2008:
Revenues		2,254,242		1,079,069		3,333,311
Long-lived assets		734,044		435,491		1,169,535

* Includes export sales to countries other than Brazil.

NOTE 9 – NOTE RECEIVABLE

The Company received an $840,000 Note during the period ending December 31, 2007 related to the sale of assets of the Company’s wholly owned subsidiary Reagents Applications Inc. The Note is payable in forty-eight monthly installments of principal of $17,500 plus accrued interest at the rate of 8% beginning on December 31, 2007. For the six months ending March 31, 2009 and 2008, the Company has received $105,000 and $70,000, respectively in principal payments against the Note. All payments that have been received on the Note have been made in accordance with the terms of the Promissory Note.

NOTE 10 – DISCONTINUED OPERATIONS

On October 8, 2007, the Company sold the assets of its wholly owned subsidiary Reagents Applications, Inc. The results of operations for this division have been presented as discontinued operations in the accompanying financial statements for the periods ending March 31, 2009 and 2008.

Results from discontinued operations, net of income tax, for the three and six month periods ending March 31, 2009 and 2008 are as follows:

	Three Months Ended				Six Months Ended
	March 31, 2009		March 31, 2008		March 31, 2009		March 31, 2008
Net sales	$	17,863	$	154,079	$	37,783	$	371,240
Costs of sales		17,863		154,079		37,783		410,967
Gross Profit		--		--		--		(39,727	)

Operating expenses:
Selling, general and administrative		--		--		--		196,936
Research and development		--		--		--		1,708
Total operating costs and expenses		--		--		--		198,644

Operating loss		--		--		--		(238,371	)

Other income (expenses):
Other Income (expense)		--		--		--		--
Gain on Sale of Assets		--		--		--		1,094,817
Total other income (expense)		--		--		--		1,094,817

Net income (loss) before income taxes		--		--		--		856,446

In come Tax		--		--		--		--
Net income (loss) from discontinued operations		--		--		--	$	856,446

The revenues generated for the three and six month periods ending March 31, 2009 were from the sale of inventory from the discontinued division. Pursuant to an inventory agreement, the remaining inventory was being sold at cost to the purchaser for a period of eighteen months subsequent to the sale.

As of March 31, 2009 the Company had approximately $7,800 of accounts receivable remaining from the Raichem operation which is fully reserved.

In addition, the Company has the following inventory consisting of Raichem products which is being sold pursuant to the inventory purchase agreement.

	March 31, 2009
Raw Materials	$	123,933
Work-in-process		392
Finished goods		45,653
		169,978
Less reserves		(40,226	)
Inventories, net	$	129,752

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Refer to "Forward Looking Statements" following the Index in front of this Form 10-Q.

Overview

Hemagen Diagnostics, Inc. is a biotechnology company that develops, manufactures, and markets approximately 68 FDA-cleared proprietary medical diagnostic test kits. Hemagen has two different product lines. The Virgo® product line of diagnostic test kits is used to aid in the diagnosis of certain autoimmune and infectious diseases, using ELISA, Immunoflourescence, and hemagglutination technology. The Analyst® product line is an FDA-cleared clinical chemistry analyzer system, including consumables, that is used to measure important constituents in human and animal blood. The Company sells its products both directly and through distributors to reference labs, physicians, veterinarians, clinical laboratories and blood banks. The Company also sells its products on a private-label basis through multinational distributors. The Company was incorporated in 1985 and became a public company in 1993.

Hemagen’s principal office is located at 9033 Red Branch Road, Columbia, Maryland 21045 and the telephone number is (443) 367-5500. Hemagen maintains a website at www.hemagen.com . Investors can obtain copies of our filings with the Securities and Exchange Commission from this site free of charge as well as from the Securities and Exchange Commission website at www.sec.gov.

Critical Accounting Policies

We have identified certain accounting policies as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to the identified critical accounting policies on our business operations are discussed in our Annual Report on Form 10-KSB for the fiscal year ended September 30, 2008 filed with the Securities and Exchange Commission.

Results of Operations

The Three Month Period Ended March 31, 2009

Compared to the Three Month Period Ended March 31, 2008

Revenues from continuing operations for the three-month period ended March 31, 2009 decreased by approximately $492,000 (27%) to approximately $1,301,000 from approximately $1,793,000 for the same period ended March 31, 2008. The decrease in revenues of approximately $393,000 is attributable to lower sales of Analyst equipment during the quarter as compared to the same period last year. Sales from the Brazilian subsidiary are approximately $92,000 lower than last year due to the currency devaluation of approximately 30% of the Brazilian Real.

Cost of product sales from continuing operations decreased approximately $239,000 (23%) to approximately $776,000 from approximately $1,015,000 for the same period last year. Cost of product sales as a percentage of sales increased to 60% from 57% from the same period last year. This increase in cost of sales as a percentage of sales is primarily attributed to lower sales volume during the second quarter as the fixed cost of sales expenses remained relatively constant.

Research and development expenses from continuing operations decreased by approximately $35,000 (66%) to approximately $16,000 from approximately $51,000 in 2008. This decrease was the result of an employee termination.

The Company continues toward working to complete several research and development programs including:

·	Activities related to upgrading the Analyst instrument and product offerings such as evaluating and developing complimentary products for Hemagen’s Analyst product line to distribute to the veterinary market and alternative tests utilizing the Analysts’ rotor technology;

·	Developing new ELISA kits and enhancing existing ELISA kits; and

·	Developing and enhancing IFA kits.

Selling, general and administrative expenses from continuing operations decreased by approximately $18,000 (3%) for the quarter ended March 31, 2009 to approximately $573,000 from approximately $591,000 in the previous period. The majority of this overall decrease is related to the currency devaluation in Brazil with overall Brazil SG&E expenses approximately $26,000 lower than the same period last year.

Total other expenses for the three months ending March 31, 2009 increased by $16,000 to approximately $98,000 from approximately $82,000 from the period ending March 31, 2008. This increase in net other expense is attributed to an increase in interest expense of approximately $5,000 on the Brazil bank notes obtained to finance equipment purchases, a decrease in interest income of approximately $5,000 related to the declining balance on the Note Receivable. During the quarter ending March 31, 2008 the company also recorded a gain on the sale of assets in the amount of approximately $4,000 that did not reoccur in the quarter ending March 31, 2009.

Income tax expense for the quarter ended March 31, 2009 was approximately $200 as compared to approximately $27,000 for the quarter ended March 31, 2008. This tax expense resulted from income realized at the Company’s Brazilian subsidiary. The net income before tax for the Company’s Brazilian subsidiary for the period ending March 31, 2009 was approximately $20,000 compared to net income before tax of approximately $127,000 for the prior year. The Brazilian income tax is calculated at an effective rate of approximately 22% which includes the fact that there are net loss carry forwards being utilized from prior periods.

Net income for the period decreased by approximately $191,000 for the three months ended March 31, 2009 to net loss of approximately $163,000 compared to net income of approximately $28,000 in the same quarter of the prior year. The reduction in net income is directly attributable to the lower sales during the most recent quarter.

The Six Month Period Ended March 31, 2009

Compared to the Six Month Period Ended March 31, 2008

Revenues from continuing operations for the six month period ended March 31, 2009 decreased by approximately $646,000 (19%) to approximately $2,687,000 from $3,333,000 for the same period ended March 31, 2008. The decrease in revenues is primarily attributable to a decrease in sales volume of approximately $634,000 in the Analyst line, of which approximately $605,000 is related to the lower sales of equipment and approximately $26,000 of lower sales of Analyst consumables. The remaining decline in revenues is attributed to currency devaluation in Brazil.

Cost of product sales from continuing operations decreased by approximately $250,000 (54%) to approximately $1,654,000 from approximately $1,904,000 for the same period last year. Cost of product sales as a percentage of sales increased slightly to approximately 61% compared to 57% for the same period last year. The increase in cost of sales as a percentage of revenue resulted from lower sales volume.

Research and development expenses from continuing operations decreased by approximately

$53,000 (57%) during the six months ended March 31, 2009 to approximately $39,000 from $92,000 in 2008. This decrease was the result of an employee termination.

Selling, general and administrative expenses from continuing operations increased slightly by approximately $27,000 (2%) for the six months ended March 31, 2009 to approximately $1,194,000 from approximately $1,167,000 in the previous period. Hemagen had an increase in deprecation expense of approximately $32,000 which was mainly offset by the overall lower SG&A expenses in Brazil which was attributable to the currently devaluation during fiscal 2009.

Total other expenses for the six months ending March 31, 2009 decreased approximately $15,000 to approximately $155,000 from approximately $170,000 from the six month period ending March 31, 2008. The decrease in other expenses is a combination of an overall increase in net interest expense offset by the gain of approximately $43,000 from the sale of a company asset. The increase in net interest expense was attributed to the declining principal balance of the Note Receivable.

Income tax expense for the six months ended March 31, 2009 was approximately $16,000 as compared to $57,000 for the six months ended March 31, 2008. This tax expense resulted from income realized at the Company’s Brazilian subsidiary. The income before tax for the Company’s Brazilian subsidiary for the six month period ending March 31, 2009 was approximately $20,000 compared to a net income before tax of approximately $259,000 for the prior year. The Brazilian income tax is calculated at an effective rate of approximately 22% which includes the fact we are utilizing some net loss carry forwards from prior periods.

Net income decreased by approximately $1,172,000 for the six months ended March 31, 2009 to a net loss of approximately $371,000 compared to net income of approximately $801,000 in the six month period ended March 31, 2008. Included in the six months ended March 31, 2008 was net income from discontinued operations in the amount of approximately $856,000. The remaining decrease was the result of lower revenues and margins from continuing operations during current period.

Liquidity and Capital Resources

At March 31, 2009, Hemagen had $90,438 of cash, a working deficit of $2,613,123 and a current ratio of .5 to 1.0. At September 30, 2008, the Company had $98,799 of cash, a working deficit of $2,225,607 and a current ratio of .6 to 1.0. Included in the calculation of working capital and the current ratio is approximately $4,018,000 and $3,979,000 of subordinated debt as of March 31, 2009 and September 30, 2008, respectively, which is due on September 30, 2009.

During the next several months, the Company expects to restructure the debt by among other things, extending the maturity date of the Notes representing such debt, but no assurances can be made in this regard. Excluding the subordinated debt in the calculation, which assumes that it is restructured successfully, working capital would be $1,404,860 with a current ratio of 1.9 to 1.0 and $1,753,656 and a current ratio of 2.1 to 1.0, as of March 31, 2009 and September 30, 2008, respectively.

The Company has a revolving line of credit with a bank for the purpose of financing working capital needs as required which was renewed effective March 31, 2009. The line of credit facility provides for borrowings up to $500,000 at an interest rate of Prime Rate plus .75%, with an interest rate floor of 5.5% and is due April 1, 2010. If however, Hemagen fails to renew or recapitalize its existing bond indebtedness by September 30, 2009, the final and absolute due date will be September 30, 2009. Maximum borrowings under the loan are based on the domestic receivables and inventory of the Company. The line of credit facility has a first lien on all assets of the Company. As of March 31, 2009, the outstanding balance on the line of credit was $475,000 with an effective interest rate of 4.00%. As of May 2, 2009 the current outstanding balance on the line of credit was $445,000. As of March 31, 2009, the Company was in compliance with its debt covenants.

The Company believes that cash flow from operations and cash on hand at March 31, 2009 will be sufficient to finance its operations for the remainder of fiscal 2009. However, the Company can give no assurances that it will have sufficient cash finance its operations. The Company has no off-balance sheet financing arrangements.

On September 30, 2009, the Company’s Senior Subordinated Secured Convertible Notes outstanding in the amount of $4,049,850 becomes due and payable. Hemagen does not have sufficient cash to repay these Notes and, therefore, expects to restructure the debt, by among other things, extending the maturity date of the Notes. However, the Company can give no assurances that it will be able to refinance or repay these Notes.

Net cash provided by operating activities during the six months ended March 31, 2009 was approximately $77,000 compared to cash provided of approximately $305,000 during the six months ended March 31, 2008. The decrease in cash provided by operations resulted from the combination of lower sales during the current year as compared to same period last year, and a significant reduction of inventory being sold to the purchaser of the Company’s Raichem division from the same period of the prior year, offset by a reduction in prepaid expenses and account receivable during the current quarter.

Approximately $45,000 of cash was generated from investing activities during the six months ended March 31, 2009 as compared to approximately $249,000 of cash used for investing activities during the six months ended March 31, 2008. The cash was generated by the payments made on the Note receivable and the sale of lab equipment, offset by additional purchases of lab equipment and computers. The cash used from investing activities during the six months ended March 31, 2008 was primarily for the purchase of lab equipment for use in the Brazil operations.

In accordance with the terms on the Note with the purchaser of Raichem, the Company received payments in the amount of $105,000, and $70,000 for the six months ended March 31, 2009 and 2008, respectively, against the Note receivable.

Cash used by financing activities was approximately $106,000 during the six months ended March 31, 2009, compared to cash provided by financing activities of approximately $125,000 for the six months ended March 31, 2008. During the six months ended March 31, 2008, the Company’s Brazilian subsidiary secured financing to purchase lab equipment for use with our products. During the six months ended March 31, 2009, the Company made payments against this Note in the amount of $80,534.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

The Company’s Chief Executive Officer, William P. Hales and Principal Financial Officer, Catherine Davidson have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2008. Based upon this evaluation, Mr. Hales and Ms. Davidson believe that the Company’s disclosure controls and procedures were effective as of March 31, 2009 except for the matters described below.

Management is aware that there is a lack of segregation of duties due to the small number of employees within the financial and administrative functions of the Company. As a result of the limitations of the resources and segregation of duties, Stegman and Company, the Company’s current auditor, has informed the company that these limitations represent a material weakness in internal controls. Management will continue to evaluate this segregation of duties issue. Over the past several months, management has documented the Company’s critical control procedures and will continue to review and update such procedures as changes occur.

There has been no change in the Company’s internal control over financial reporting identified in connection with the evaluation of internal controls that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to affect, Hemagen’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Period	( a ) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)		(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)
January 1-31, 2009		11,227	$	0.15		11,227		-
February 1-28, 2009		--		--		--		-
March 1-31, 2009		--		--		--		-
Total		11,227	$	0.15		11,227		-

(1)

Represents shares of Company’s Common Stock purchased pursuant to the Company’s Employee Stock Ownership Plan (ESOP) that was established October 1, 2003 with no expiration. The purpose of the plan is not to repurchase, but rather it is an employee benefit plan.

(2)

There is no maximum number of shares that may be purchased under the Company’s Employee Stock Ownership Plan.

Item 6. Exhibits.

(a) Exhibits

Exhibit 31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a)
Exhibit 31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a)
Exhibit 32.1	Certification of Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Exhibit 32.2	Certification of Principal Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized.

		Hemagen Diagnostics, Inc. (Registrant)
May 14, 2009		/s/ William P. Hales
		William P. Hales
		President and Chief Executive Officer


May 14, 2009		/s/Catherine M. Davidson
		Catherine M. Davidson
		Principal Financial Officer