FROM THE PRESIDENTS
DESK

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| | Dear fellow shareholders,


In 2004 BASi reached the milestone of 30 years in business, and I reached the
milestone of 60 years of age. I feel very good about both. On the other hand,
2004 was a challenging year for the pharmaceutical industry.

The political discussion about re-importation of drugs from Canada and its
relationship to the general issue of drug pricing became very burdensome. Along
the way, we had some bad news about Vioxx and flu vaccine. A lot of ink was also
devoted to a purported link between SSRI drugs and teen suicide. These topics
are useful points of discussion to educate the public about the challenges faced
in pharmaceutical/biotech research and development. Unfortunately, they are
rarely presented in a balanced fashion.

It is fair to say there is no one right answer. The ideal, of course, is that
drugs will be safe, effective, and cheap. Achieving even two of these three
goals is unrealistic in the short term. Relatively safe, relatively effective
and relatively cheap is the only way we can expect new drugs to be approved
relatively soon. The general public must be educated to understand this reality.
Any other expectations are wishful thinking and lead to a lot of unproductive
debate.

Throughout fiscal 2004, which ended September 30, BASi focused on consolidating
and tuning the major capacity increases made in 2003. Our goals were to improve
capacity utilization, efficiency and training. We made excellent progress on all
three, but not to the extent we had hoped.

The year remained lumpy, with our third quarter being the best.
Sales increased 25% to $37.2 million. We did not achieve the net income
anticipated, showing a small loss of $203,000. I accept full responsibility for
these results. We did not execute with the speed necessary, and so we are
continuing with the same themes in fiscal 2005.
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| | We have sufficient physical capacity. We hired some excellent staff in 2004, but
several key positions were not filled, and normal turnover opened others. The
major IT investments we have been making for several years continue to be
primary to our productivity goals and to regulatory compliance. Although
completion will occur a few months later than originally planned, we expect the
project will conclude in the second quarter of FY 2005.

As with many public companies, we once again rely on our 10-K report to the SEC
to capture and give you complete details of our 2004 financial picture. I am
especially pleased by our new finance and accounting team, let by CFO Mike Cox
and Controller Rod Bentley. They had been in place for only a few months when FY
2004 ended, and they have done a marvelous job of helping with new systems in
financial planning and reporting throughout the company. They are very attentive
to our obligations under Sarbanes Oxley legislation as we implement new IT
resources at all five operating sites.

I was gratified to see some ratification of our plans in the form of increased
stock prices, even though we fell slightly behind in our goals. We remain
focused on our three objectives and refuse to have our attention diverted
elsewhere. I believe everything we are doing in science and in business will be
compelling, both for patients and for shareholders.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Peter T. Kissinger
President, Chairman & CEO
| | --------------------------------------------

A QUICK LOOK ATBASI

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OUR MISSION

We will advance health care through innovative science. Alliances, research
services and unique products define our role in the worldwide effort to
understand disease and develop therapeutic solutions.

OUR VISION

To be a recognized premier supplier of high value information for in-life
studies of drugs and devices. To provide the bridge between discovery and full
clinical development. To understand the properties of the stimulus (the dose)
and the resulting response (pharmacology, toxicology, disposition) consistent
with the latest science and regulatory compliance. To be financially rewarded
for providing this valued data.

WHO WE ARE

BASi offers contract research and development services, analytical instruments
and other products to the pharmaceutical, medical device and biotechnology
markets. The companys first product was an electrochemical detector, and
for several years, analytical instrument development and manufacture was the
primary focus. In response to client demand, the companys contract
research arm was formed in 1984 to provide bioanalytical support for preclinical
and clinical researchers. The company now has over 300,000 square feet of
laboratory and research space and five sites spanning eight time zones. Contract
services have grown to represent over 65% of BASi revenues.

WHAT WE DO

BASi fills needs from late discovery through Phase IV trials, providing a broad
range of contract services supported by state-of-the-art bioanalytical and
pharmaceutical analysis in the U.S. and the U.K. In addition to its newest and
most innovative instrument, the Culex® Automated Blood Sampler, BASi
products include bioanalytical separation instrumentation and a variety of
electrochemical analytical instruments.

WHO WE SERVE

The company serves nearly all of the worlds top 25 pharmaceutical
companies, along with many smaller entities and the academic
community.

|OUR OBJECTIVES FOR 2005

Fill Capacity . . . and fill it profitably.
Improve Productivity.
Increase Training. |  | The final phases of developing a new drug include clinical trials
conducted on human volunteers to ensure safety and effectiveness.
|------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------

OUR FOCUS 
OUR FUTURE

---

Each time a new chemical substance is isolated and believed to have therapeutic
value, a number of tests are performed, in a progression of mammals from mouse
to human, to establish whether the new substance will be sufficiently safe and
effective to justify full commercial development. This is accomplished through a
series of carefully controlled experiments.

First there is the question of the dose. How much? How pure? How often? The BASi
Pharmaceutical Analysis team concentrates on that. Scientists must know in great
detail what they are about to study in life. Otherwise, the result will be
ambiguous. For example, we dont want conclusions to be influenced by
impurities.

When a mammal ingests a foreign chemical, called a xenobiotic, many things can
happen. Some happen very quickly (within minutes) and others happen slowly (over
years). There are entire fields of science that get involved to sort out
whats going on. There are physical aspects such as blood pressure,
electrocardiograms, and temperature. There are behavioral aspects such as
fatigue and anxiety. There are chemical topics such as how the dose was
administered  orally, by IV or transdermally (through the skin via a patch
or an ointment)  and how the dose was distributed. Did it travel to the
brain, or is it concentrated in the joints? Where is it, and how much is there?
Then, what endogenous biochemicals in the mammal responded to the presence of
the new xenobiotic invader? Are those changes of therapeutic benefit
(pharmacology), or are they indicative of a threat (toxicology)?

These are the topics BASi pursues with both products and services. The company
designs products that facilitate carrying out such studies more precisely, more
accurately and more quickly. The contract research divisions design methods to
do the same, all meeting rigorous quality standards imposed by the FDA and many
other agencies (USDA, EPA, NIH and more). The goal is clear: Better health
care.

BASi goes to great effort to communicate about these topics via our web
sites, a host of publications and presentations at scientific meetings.



PHARMACEUTICAL TRUE AND
FALSE

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The pharmaceutical industry is faced with a number of key issues that have come
under public scrutiny. Cost, re-importation, and safety versus effectiveness are
only a few. Rarely is there one right answer, but educating the public about all
sides of the issues will help to create a fair and balanced perspective and
promote more intelligent decisions.

DRUGS ARE TOO EXPENSIVE!

Most drugs are very expensive, compared
to M&Ms and Big Macs, and they are more expensive in the U.S. than in many
other countries. That is because we accept responsibility and risk for the
majority of the R/D costs to develop new drugs. After all, we have a very high
standard of living and therefore should expect to pay more than others. It is
true that conventional organic drugs cost very little to manufacture. In some
cases the cost is only pennies per capsule or tablet (not so, though, for
protein-based products). However, the very first prescription might have cost
the company $800 million to $1.2 billion to produce because of the 5 to 15 years
of development effort during which there were only expenses and no revenue.
Obviously drugs should be expensive!

Compared to what? The total cost of healthcare in the U.S. is
only 14 to 15% of our GNP, and drugs are about 10 to12% of that, or about 1.5%
of GNP. Many drugs today cost less  as much as ten times less  than
when they were introduced. For example, we have antidepressants and a number of
antihypertensives that cost under $25 per month. Drugs to treat pain and
allergies that once required costly prescriptions are now sold over the counter
at very reasonable prices.

Try to understand the system. Long ago it was agreed that inventors could trade
a period of exclusive rights for disclosing their invention to the world. After
that period of reward and recovering the cost of invention, consumer prices will
inevitably drop as other producers jump in and compete. In the pharmaceutical
industry, we call these the generics. The innovator companies fight to keep
their period of exclusivity as long as they can. Thats free market
capitalism at work. Yes, certain maneuvers have been employed about which
intelligent people can argue. On the other hand, drugs dont come to market
as quickly as electronic gadgets. The approval process takes more time than ever
imagined by those who developed the patent system.

| | To help determine how drugs are metabolized, the highly sophisticated equipment
in the BASi bioanalytical labs can measure concentrations as miniscule as
0.5 parts per trillion inspecimens taken from different species of mammals,
including humans.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We should have some civil discussion about the exclusivity period. If it is too
long, prices and profits could be viewed as too high. If the exclusivity period
is too short, incentive to invest in new medicines for many challenging diseases
can evaporate. On the other hand, if a company had a longer exclusivity period,
they could recover their R/D investment at a lower cost to patients. Would they?
They just might if the number of patients having access to the drug would
thereby increase. There is no one right answer.

TOO
MUCH IS SPENT ON MARKETING AND DISTRIBUTING DRUGS!

The distribution system and the personal interaction between
sales people, called detailers, and physicians are significant cost drivers.
Advertisements to the general public in print and on TV are a relatively new
marketing technique. There could be more disintermediation
(eliminate some middlemen) here with a greater reliance on IT for distributing
information. Both the senders and the receivers of the information would have to
adjust.

The current marketing system provides many free samples that
can help the disadvantaged. Both physicians and patients benefit from having
more information. If patients learn about available therapies, they might
discuss them with their physicians and together work on an optimum solution. No
doubt about it, both physicians and patients could make a great deal of progress
by using available on-line information resources. Medical web sites are
available from many for-profit and not-for-profit organizations. Knowledge is
strength when it comes to healthcare. Advertising is an information resource,
and creating awareness has value.

BIOTECHNOLOGY HAS NOT BEEN SO HELPFUL.

Compared to its hype, this is very true. The missing ingredient
has been more an issue of time, rather than whether new technologies will be
helpful. The academic community, funding agencies, foundations, the press and
the investment community respond best to bouts of unbounded optimism. Optimism
and associated confidence are very good things. Arrogance is not. Nationally,
education in the sciences is very poor, and that hurts us here. Most citizens
are unaware that the science is far more complex than they have been lead to
believe. To use a familiar analogy, interactions between organs, and interaction
between molecules in vivo, is like a whole season of baseball compared to a
simple game of catch.

Biotechnology has had a very positive role in treating a number
of diseases including HIV, cancer and diabetes. Thats a fact. It has
resulted in fabulous new approaches to understanding very complex diseases that
were previously refractory to virtually any treatment beyond alleviating some
symptoms. Getting down to fundamental causes is finally feasible. In many cases
this will take time. Consider stem cell research. Will it be useful? Perhaps.
When? We really have no reasonable idea. Its an idea at this stage, not a
therapy.

| | Culex® Automated Blood Sampler technology, and the BASi toxicologylabs are
both dedicated to understanding the safety and effectiveness ofnew drugs as
fully as possible before they are introduced to humans.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DRUGS ARE NOT SAFE!

There has never been a drug that is absolutely safe and
absolutely effective for all patients. It is unlikely, at this stage, that there
ever will be such a drug. We must all face the fact that drugs are relatively
safe and relatively effective, and that there can be no complete agreement on
what relatively means!

Drugs are, for the most part, quite safe. Side effects
recognized in clinical trials, and even after marketing, are evident in only a
very small percentage of patients. With awareness, they can be managed with
satisfaction most of the time.

DRUGS ARE NOT EFFECTIVE.

Drugs are not completely effective in every individual. The
statistics gathered in clinical trials come, of course, from populations, from
averages. But you are an individual, and physicians must treat you as an
individual. Thus, a drug that worked well for 80% of the subjects in a clinical
trial (a high percentage, by the way), wont help you if you are part of
the 20% for whom it did not show a positive clinical outcome.

Drugs, on average, dont do a lot for perhaps 50% of those
for whom prescriptions are written. But is the glass half full or half empty?
Often there are a number of drugs in a category that behave slightly differently
in individual patients. (This is well established, as with depressive illness
and pain, for example.) Physicians and patients often must experiment to
optimize performance. Isnt this reasonable? Should a drug that works only
20% of the time be denied approval? Shouldnt the one patient out of five
for whom it does the job be allowed to have access?

These are complex topics.
Each point of view is correct to some degree, and each is flawed. One-sided
generalizations are neither sound nor well thought out. There is no single
answer to any of these questions across all areas of human disease. The best we
can hope for is to arm ourselves, and the public, with as much knowledge as
possible to promote informed decisions.

SELECTED CONSOLIDATED
FINANCIAL
DATA

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|                                      | YEAR ENDED SEPTEMBER 30,
|------------------------------------- | ------------------------
|
|(in thousands, except per share data)
|                                     
|Service revenue                       |                         
|Product revenue                       |                         
|                                      |                         
|Total revenue                         |                         
|Cost of service revenue               |                         
|Cost of product revenue               |                         
|                                      |                         
|Total cost of revenue                 |                         
|                                      |                         
|Gross profit                          |                         
|                                      |                         
|Operating expenses:                   |                         
|Selling                               |                         
|Research and development              |                         
|General and administrative            |                         
|                                      |                         
|Total operating expenses              |                         
|                                      |                         
|Operating income (loss)               |                         
|Other (expense), net                  |                         
|                                      |                         
|Income (loss) before income taxes     |                         
|Income taxes (benefit)                |                         
|                                      |                         
|Net income (loss)                     |                         
|                                      |                         
|Net income (loss) per share           |                         
|Basic                                 |                         
|Diluted                               |                         
|Weighted average common               |                         
|shares outstanding                    |                         
|Basic                                 |                         
|Diluted                               |                         
|                                     
|
|
|(in thousands)                       
|                                     
|Working capital (deficit)             |                         
|Property and equipment, net           |                         
|Goodwill and other intangible         |                         
|assets, net                           |                         
|Total assets                          |                         
|Long-term debt, less                  |                         
|current portion                       |                         
|Subordinated debt,                    |                         
|less current portion                  |                         
|Shareholders' equity                  |                         

The above is selected audited consolidated financial data of the Company for the
five years ended September 30, 2004. This annual report has been produced in two
separate segments. One segment is a reprint of the BASi 10-K for fiscal year
2004 which is enclosed. In the event the 10-K information has been separated, it
can be obtained from the SEC or BASI web sites, or we would be pleased to mail
or email a copy at your request.

QUARTERLY FINANCIAL DATA

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UNAUDITED (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

|FOR THE QUARTER ENDED IN FISCAL 2004                     
|---------------------------------------------------------
|
|Total revenue                                            
|Gross profit                                             
|Net income (loss)                                        
|Basic net income (loss) per common share outstanding(1)  
|Diluted net income (loss) per common share outstanding(1)
|                                                         
|
|
|Total revenue                                            
|Gross profit                                             
|Net income (loss)                                        
|Basic net income (loss) per common share outstanding(1)  
|Diluted net income (loss) per common share outstanding(1)

(1)    The sum of the net income per common share may not
equal the annual net income per share due to interim quarter rounding.

| | The BASi pharmaceutical analysis labs carefullytest drugs to measure purity, potency, shelf life,dissolution
characteristics and other propertiesthat affect their everyday use. | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

|BOARD OF DIRECTORS
Peter T. Kissinger, Ph.D.
Chairman, President and Chief Executive Officer
Ronald E. Shoup, Ph.D.
Chief Operating Officer, BASi Contract Research Services
Candice B. Kissinger
Senior Vice President and Research Director
Corporate Secretary
William E. Baitinger*
Special Assistant to the Vice President for Research
Purdue University
W. Leigh Thompson, Ph.D., M.D.*
Chief Executive Officer
Profound Quality Resources, Inc.
Leslie B. Daniels*
Principal
CAI Advisors & Co., LLP
David W. Crabb, M.D.
Chairman
Indiana University Department of Medicine
Gayl W. Doster*
Chair, Joint Task Force on Regulation
Indiana CPA Society* Member of Audit CommitteeEXECUTIVE MANAGEMENT
Peter T. Kissinger, Ph.D.
Chairman, President and Chief Executive Officer
Ronald E. Shoup, Ph.D.
Chief Operating Officer, BASi Contract Research Services
Michael R. Cox
Chief Financial Officer and Vice President, Finance
Candice B. Kissinger
Senior Vice President and Research Director
Craig S. Bruntlett, Ph.D.
Senior Vice President, Global Sales
Michael P. Silvon, Ph.D.
Vice President, Planning and Development
Lina L. Reeves-Kerner
Vice President, Human Resources | CORPORATE INFORMATIONANNUAL MEETING OF SHAREHOLDERS
February 17, 2005
BASi Corporate Center
West Lafayette, IndianaAUDITORS
KPMG LLP
Indianapolis, IndianaTRANSFER AGENT
Corporate Trust Department
National City Bank
1900 East 9th Street
Cleveland, Ohio  44114COMMON SHARES
Bioanalytical Systems, Inc. common shares are traded on the NASDAQ National
Market under the symbol BASI.
The following table sets forth by calendar quarter the high and low sales prices
of the common shares on the NASDAQ National Market System. The approximate
number of holders of common shares is 2,700.Fiscal              
    1st Qtr.    
    2nd Qtr.    
   3rd Qtr.    
4th Qtr.
2004
High                  
    4.71            
    5.05        
    4.75           5.99
Low                   
    3.75            
    3.80        
    3.79           3.90
2003
High                  
    3.35            
    3.71        
    3.20           4.99

Low                   
    2.66            
    2.69          
  2.75           2.79
The Company has not paid any cash dividends on its common shares for the three
most recent fiscal years. The Company has no intention to pay cash dividends in
the foreseeable future.INQUIRIES
A copy of the Company's 2004 Form 10-K Annual Report filed with the
Securities and Exchange Commission is available without charge upon written
request, and by visiting www.bioanalytical.com/invest/annual.html. Media
inquiries and requests for the 10-K and investor's kits should be directed to:

   Corporate Communications Director, Bioanalytical Systems, Inc.
   2701 Kent Avenue
   West Lafayette, IN  47906  USA
Inquiries from shareholders, security analysts, portfolio managers, registered
representatives and other interested parties should be directed to:
   BASi Investor Relations, NASDAQ: BASI
   765-463-4527, www.bioanalytical.com
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