# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

# FORM 10-K

(Mark One)    ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
        for the fiscal year ended
September 30, 2004.
OR    TRANSITION  REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF 1934
        for the  transition period from 
to.

Commission File Number 000-23357BIOANALYTICAL SYSTEMS, INC.
(Exact name of the registrant as specified in its charter)

|INDIANA                                                        | 35-1345024                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
|2701 KENT AVENUEWEST LAFAYETTE, INDIANA                        | 47906                               
|(Address of principle executive offices)                       | (Zip Code)                          
|(765) 463-4527                                                
|(Registrant's telephone number, including area code)          

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

Securities     registered     pursuant     to     section     12(g)    of    the
Act:   Common Shares

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 90 days.    YES  
     
NO

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K 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-K or any amendment to this
Form
10-K.

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined              in              Rule              12b-2).   
YES      
 NO

Based on the closing  price on the NASDAQ stock market on January 10, 2005,  the
aggregate  market  value of the  voting and  non-voting  common  equity  held by
non-affiliates  of the  registrant  is  $18,297,510.  As of  January  10,  2005,
4,869,502 shares of registrant's  common shares were  outstanding.  No shares of
registrant's Preferred Stock were outstanding as of January 10, 2004.

Portions of the following  documents  have been  incorporated  by reference into
this report:

| | Registrant's Document                                                         | Parts Into Which Incorporated
| | ----------------------------------------------------------------------------- | -----------------------------
|
| | Annual Report to security holders for the fiscal yearended September 30, 2004 | Part II                      
|
| | Proxy Statement                                                               | Part III                     

TABLE OF CONTENTS

|         |                                                                                       | Page
|-------- | ------------------------------------------------------------------------------------- | ----
|Part I   |                                                                                       | 1   
|Item 1.  | Business                                                                              | 1   
|Item 2.  | Properties                                                                            | 15  
|Item 3.  | Legal Proceedings                                                                     | 16  
|Item 4.  | Submission of Matters to a Vote of Security Holders                                   | 16  
|        
|Part II  |                                                                                       | 17  
|Item 5.  | Market for Registrant's Common Equity and Related Stockholder Matters                 | 17  
|Item 6.  | Selected Financial Data                                                               | 17  
|Item 7.  | Management's Discussion and Analysis of Financial Condition and Results of Operations | 17  
|Item 7A. | Quantitative and Qualitative Disclosures about Market Risk                            | 25  
|Item 8.  | Financial Statements and Supplementary Data                                           | 26  
|Item 9.  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  | 46  
|Item 9A. | Controls and Procedures                                                               | 46  
|        
|Part III |                                                                                       | 47  
|Item 10. | Directors and Executive Officers of the Registrant                                    | 47  
|Item 11. | Executive Compensation                                                                | 48  
|Item 12. | Security Ownership of Certain Beneficial Owners and Management                        | 48  
|Item 13. | Certain Relationships and Related Transactions                                        | 48  
|Item 14. | Principal Accounting Fees and Services                                                | 48  
|        
|Part IV  |                                                                                       | 49  
|Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       | 49  



PART I

This  Report  contains   certain   statements  that  are   forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Readers of this Report are cautioned that reliance on any
forward-looking statement involves risks and uncertainties. Although
Bioanalytical Systems, Inc. (the Company) believes that the
assumptions on which the forward-looking statements contained herein are based
are reasonable, any of those assumptions could prove to be inaccurate given the
inherent uncertainties as to the occurrence or nonoccurrence of future events.
There can be no assurance that the forward-looking statements contained in this
Report will prove to be accurate. The inclusion of a forward-looking statement
herein should not be regarded as a representation by the Company that the
Companys objectives will be achieved.

Item 1.    Business.

General

The Company provides contract development services and research equipment to
many of the leading global pharmaceutical, medical research and biotechnology
companies and institutions. It has played a significant role in understanding
the underlying causes of central nervous system disorders, diabetes,
osteoporosis and other diseases since its start in 1974.

We offer an efficient, variable cost alternative to our clients internal
product development programs. Outsourcing development work to reduce overhead
and speed drug approvals through the Food and Drug Administration
(FDA) is an established alternative to in-house development among
pharmaceutical companies. We derive our revenues from sales of our research
services and drug development tools, both focused on determining drug safety and
efficacy.

We support preclinical and clinical development needs of researchers and
clinicians for small molecule through large biomolecule drug candidates. The
Company believes its scientists have the skills in analytical instrumentation
development, chemistry, computer software development, physiology, medicine, and
toxicology to make the services and products it provides increasingly valuable
to its current and potential clients. Scientists engaged in analytical chemistry
clinical trials, drug metabolism studies, pharmacokinetics and basic
neuroscience research at many of the largest global pharmaceutical companies are
our principal clients.

Acquisitions

PharmaKinetics Laboratories, Inc.

On May 26, 2003, PharmaKinetics Laboratories, Inc., a Maryland corporation
(PKLB), became a majority owned subsidiary of the Company. Following
the acquisition PKLB was renamed BASi Maryland, Inc. The Company acquired PKLB
to broaden its service offering base, which now includes Phase I through III
clinical trials services and a fourth bioanalytical lab complementing sites in
Indiana, Oregon and the United Kingdom. In addition, the Company wanted to
establish a meaningful operating presence physically near current and potential
clients on the East Coast of the U.S. PKLBs operating performance prior to
the acquisition had been poor. Since the acquisition the Company has made
significant organizational, managerial, staff, and physical plant changes to
attempt to improve PKLBs performance.

LC Resources, Inc.

On December 13, 2002, the Company acquired LC Resources, Inc. (LCR),
a privately held company based in Walnut Creek, California. The Company believes
that LCR has a strong reputation in liquid chromatography and bioanalysis, and
provides a location that is significantly closer to clients on the West Coast of
the U.S., which is an additional benefit of the acquisition.

1

Changing Nature of the Pharmaceutical Industry

The Companys services and products are marketed globally to
pharmaceutical, medical research and biotech companies and institutions engaged
in drug research and development. The research services industry is highly
fragmented among many niche vendors led by a small number of larger companies;
the latter offer an ever-growing portfolio of cradle-to-grave pharmaceutical
development services. The Companys products are also marketed to academic
and government institutions. The Companys services and products may have
distinctly different customers (often separate divisions in a single large
pharmaceutical company) and requirements. The Company believes that all clients
are facing increased pressure to outsource facets of their research and
development activities and that the following factors will increase client
outsourcing:

Accelerated Drug Development

Clients continue to demand faster, more efficient, more selective development of
a larger pool of drug candidates. Clients demand fast, high quality service in
order to make immediate, well-informed decisions to quickly exclude poor
candidates and speed development of successful ones. The need for additional
development capacity to exploit more opportunities, accelerate development,
extend market exclusivity and increase profitability drives the demand for
outsourced services.

Cost Containment

Pharmaceutical companies continue to push for more efficient operations through
outsourcing to optimize profitability as development costs climb, staff costs
increase, generic competition challenges previously secure profit generators,
political and social pressures escalate to reduce health care costs, and
shareholder expectations mount.

Patent Expiration

As exclusivity ends with patent expiry, drug companies defend their proprietary
positions against generic competition with various patent extension strategies.
Both the parent creating these extensions and the generic competitors should
provide additional opportunities for the Company.

Alliances

Strategic alliances allow pharmaceutical companies to share research know-how
and to develop and market new drugs faster in more diverse, global markets. The
Company believes that alliances will lead to a greater number of potential drugs
in testing, many under study by small companies lacking broad technical
resources. Those small companies can add shareholder value by further developing
new products through outsourcing, reducing risk for potential allies.

Mergers and Acquisitions

Consolidation in the pharmaceutical industry is commonplace. As firms blend
personnel, resources and business activities, the Company believes they will
continue to streamline operations, minimizing staffing which should lead to more
outsourcing. This may result in short-term disruption in placement of, or
progress on, drug development programs as merging companies rationalize their
respective pipelines.

Biotechnology Industry and Virtual Drug Company Growth

The biotech industry continues to grow and has introduced many new developmental
drugs. Many biotech drug developers do not have in-house resources to conduct
development. Smaller drug discovery firms struggled to find funding in 2004.
Many new companies choose only to carry a product to a developed stage
sufficient to attract a partner who will manufacture and market the drug.
Efficient use of limited funds motivates smaller firms to seek outside service
providers like the Company rather than build expensive
infrastructure.

2

Unique Technical Expertise

The increasing complexity of new drugs requires highly specialized, innovative,
solution-driven research not available in all client labs. The Company believes
that this need for unique technical expertise will increasingly lead to
outsourcing of research activity.

Data Management Expertise

Our clients and the FDA require more data, greater access to that data,
consistent and auditable management of that data, and greater security and
control of that data.

The Company is making significant investments in software throughout its
contract services groups to optimize efficiency and ensure it complies with FDA
and client expectations.

Globalization of the Marketplace

Foreign firms are relying on independent development companies with experience
in the U.S. to provide integrated services through all phases of product
development and to assist in preparing complex regulatory submissions. Domestic
drug firms are broadening product availability globally, demanding local
regulatory approval. The Company believes that domestic service providers with
global reach, established regulatory expertise, and a broad range of integrated
development services will benefit from this trend. The Company has a significant
European presence and experience in managing foreign operations from its West
Lafayette offices.

The Companys Role in the Drug Development Process

After a new drug candidate is created and carried through preliminary screening,
the development process for new drugs has three distinct phases.

1)        The preclinical
phase includes safety testing to prepare an Investigational New Drug
(IND) exemption for submission to the FDA. The IND must be accepted
by the FDA before the drug can be tested in humans. Once a pharmacologically
active molecule is fully analyzed to confirm its integrity, the initial dosage
form for clinical trials is created. An analytical chemistry method is developed
to enable reliable quantification. Stability of the formulation is also
determined.

Clients work with the Companys preclinical services group to establish
pharmacokinetics and safety testing of the new drug. These safety studies range
from acute safety monitoring on drugs and medical devices to chronic, multi-year
oncogenicity studies. Bioanalyses of blood sampled under these protocols by the
Companys bioanalytical services group provide kinetic, metabolism and
dose-ranging data. Upon successful completion of preclinical safety studies, an
IND submission is prepared and provided to the FDA for review prior to human
clinical trials.

Many of the Companys products are designed for use in preclinical
development. The Culex® ABS, a robotic automated blood sampler, enables
researchers to develop pharmacokinetic profiles of drugs during early screening
in rodents quickly and cost effectively. Several variations of this technology
are in development. Clients and the Companys bioanalytical services group
sometimes use the Companys electrochemistry and chromatography products to
develop a single, quick, proprietary method to screen drugs in biological
samples. Liquid chromatography coupled to mass spectrometry is now a mainstay of
the Companys bioanalytical laboratories. The Company has invested heavily
in robotics and mass spectrometry systems over the last five years.

2)        The clinical phase further
explores the safety and efficacy of the substance in humans. The sponsor
conducts Phase I human clinical trials in a limited number of healthy
individuals to determine safety and tolerability. Bioanalytical assays determine
the availability and metabolism of the active ingredient following
administration. Expertise in method development and validation is critical,
particularly for new chemical entities.

3

Exhaustive safety, tolerability and dosing regimens are established in sick
humans in Phase II trials. Phase III clinical trials verify efficacy and safety.
After successful completion of Phase III trials, the sponsor of the new drug
submits a New Drug Application (NDA) or Product License Application
(PLA) to the FDA requesting that the product be approved for
marketing. Early manufacturing demonstrates production of the substance in
accordance with FDA GMP guidelines. Data are compiled in an NDA, or for
biotechnology products a PLA, for submission to the FDA requesting approval to
market the drug or product. The Companys bioanalytical work per study
grows rapidly from Phase I through III. The number of samples per patient
declines as the number of patients grows in later studies. Phase II and III
studies take several years, supported by well-proven, consistently applied
analytical methods. It is unusual for a sponsor to change laboratories unless
there are problems in the quality or timely delivery of results.

The Companys recent acquisition of PKLB enables it to perform Phase I
studies in Baltimore and manage small Phase II and III trials through its
Clinical Trials Management group also in Baltimore. Phase I services include
bioavailability testing to monitor the rate and extent to which a drug becomes
available in the blood. Bioavailability can also be used to compare the
bioequivalence of similar generic and brand name drugs.

3)        Post-approval
follows FDA approval of the NDA or PLA. This includes production and continued
analytical and clinical monitoring of the drug. The post-approval phase also
tracks development and regulatory approval of product modifications and line
extensions, including improved dosage forms. The drug manufacturer must comply
with quality assurance and quality control requirements throughout production
and must continue analytical and stability studies of the drug during commercial
production to continue to validate production processes and confirm product
shelf life. Samples from each manufactured batch must be tested prior to release
of the batch for distribution to the public.

The Company also provides services in all areas during the post-approval phase,
concentrating on bioequivalence studies of new formulations, line extensions,
new disease indications and drug interaction studies.

The Companys ability to solve client problems combining its knowledge
base, services and products has been a factor in the Companys selection by
major pharmaceutical companies to assist in several preclinical and Phase I, II
and III clinical trials, as well as in the post-approval phase.

Company Services and Products

Overview

The Company operates in two business units  contract research services and
research products, both of which address the bioanalytical, preclinical, and
clinical research needs of drug developers. Both units arose out of the
Companys expertise in a number of core technologies designed to quantify
trace chemicals in complex matrices. The Company evaluates performance and
allocates resources based on these units.

Services

The Companys contract research services unit provides screening and
pharmacological testing, preclinical safety testing, formulation development,
clinical trials, regulatory compliance and quality control testing. Revenues
from the Companys services unit were $24.9 million for fiscal year 2004.
For additional financial information regarding the unit, please see Note 11 to
the Notes to Consolidated Financial Statements included in Item 8 of this
report. The following is a description of the services provided by the
Companys contract research services unit:

    Product Characterization, Method Development
and Validation:    Analytical methods determine
potency, purity, chemical composition, structure and physical properties of a
compound. Methods are validated to ensure that data generated are accurate,
precise, reproducible and reliable and are used consistently throughout the drug
development process and in later product support.

    Bioanalytical
Testing:    The Company analyzes specimens from
preclinical and clinical trials to measure drug and metabolite concentrations in
complex biological matrices. Bioanalysis is performed at Company facilities in
Indiana, Oregon, Maryland and the UK.

4

    Stability
Testing:    The Company tests stability of drug
substances and formulated drug products and maintains secure storage facilities
necessary to establish and confirm product purity, potency and shelf life in
West Lafayette, IN. The Company has multiple ICH (International Conference on
Harmonization) validated controlled climate GMP (Good Manufacturing Practices)
systems.

    In Vivo
Sampling:    The Company provides preclinical in
vivo sampling services for the continuous monitoring of chemical changes in
life, in particular, how a drug enters, travels through, and is metabolized in
living systems. Most services are performed in customized facilities in West
Lafayette, IN using the Companys robotic Culex® ABS (Automated Blood
Sampling) system and in Evansville, IN.

    Preclinical and Pathology
Services:    The Company provides pharmacokinetic
and safety testing in studies ranging from acute safety monitoring of drugs and
medical devices to chronic, multi-year oncogenicity studies in its newly
expanded Evansville, IN site. Depending on protocol, multiple tissues may be
collected to monitor pathological changes.

    Phase I, II & III Clinical
Trials:    The Company performs Phase I human
clinical trials in its 110-bed clinic in Baltimore. These are principally
bioavailability and bioequivalence studies, both for generic drug and innovator
pharmaceutical firms. It also coordinates Phase II and III studies through its
Clinical Trials Management group in Baltimore. The ability to run bioanalytical
studies on site expedites data collection and reporting.

Research Products

The Company is focusing its products business on expediting preclinical
screening of developmental drugs. The Company competes in very small niches of
the multibillion dollar analytical instrument industry. The Companys
products business targets, and in some cases dominates, unique niches in life
science research. The Company designs, develops, manufactures and markets
state-of-the-art:

    Robotic blood sampling systems and accessories
(disposables, training, systems qualification)

    In vivo microdialysis collection
systems

    Physiology monitoring tools

    Liquid chromatography and electrochemistry
instruments platform

Revenues for the Companys products unit were $12.2 million for fiscal year
2004. For additional financial information regarding the products unit, please
see Note 11 to the Notes to Consolidated Financial Statements included in Item 8
of this report. The following is a description of the products offered by the
Company:

    The Culex® ABS robotic automated rodent
blood sampling system is used by pharmaceutical researchers to monitor drug
concentrations as a function of time (pharmacokinetics). Compared to current
manual methods, the Culex offers greater than 80% reduction in test model use
and comparable reduction in labor. The Culex® also offers
computer-controlled blood sampling protocol, behavioral monitoring, flexibility
to collect other biological samples, exceptional cost savings, significant
reduction in model stress and expeditious data delivery.

    Bioanalytical separation systems (liquid
chromatography) used in connection with Windows® software, detect and
quantify low concentrations of substances tracking complex chemical,
physiological and behavioral effects in biological fluids and tissues from
humans and laboratory animal models.

    Specialized chemical analyzers monitor
trace levels of organic chemicals such as neurotransmitters in biological
samples using core electrochemistry, liquid chromatography and enzymology
technologies to separate and quantify drugs, xenobiotics, metabolites and other
chemicals in blood, cerebrospinal fluid and other biological media.

5

    epsilon is a single liquid
chromatography and electrochemistry instrument control platform for the
separation systems and chemical analyzers noted above.

    Diagnostic kits and methods enable clinical
laboratories and pharmaceutical researchers to determine the presence of
endogenous substances in blood plasma and to measure neurotransmitters and their
metabolites in plasma and urine.

    A line of miniaturized in vivo sampling devices
sold to drug developers and medical research centers, assist in the study of a
number of medical conditions including stroke, depression, Alzheimers and
Parkinsons diseases, diabetes and osteoporosis.

    Vetronics small animal diagnostic ECG and
vital signs monitors are used primarily in veterinary clinics with growing
applications in preclinical research.

Clients

Over the past five years, the Company has regularly provided its services and/or
products to most of the top 25 pharmaceutical companies in the world, as ranked
by 2004 research and development spending. The Company has been recognized as a
preferred vendor, or a tactical partner, to three of these firms.

The Company has been balancing its business development effort between large
pharmaceutical developers and the next tier of smaller drug development
companies. The Company believes that smaller companies will be more inclined to
establish a consistent, long-term, strategic relationship with the Company but
realizes that they may be poorly funded. The Company has adapted by increasing
its focus on a larger number of specialist service buyers at large and small
clients any be engaging in a more active and more diversified business
development effort staffed with specialists.

Approximately 20% of the Companys products and services revenues are
generated from customers outside of North America.

During fiscal 2003 Pfizer and Pharmacia, the Companys two largest clients
in fiscal 2002, merged. Post acquisition, Pfizer accounted for approximately
12.5% of the Companys total revenues in fiscal 2004 and 11% of total trade
accounts receivable at September 30, 2004. Treated as a single entity in 2003
and 2002, Pfizer would have accounted for approximately 16.0% and 28.3%,
respectively, of the Companys total revenues and 17.2% of total trade
accounts receivable at September 30, 2003.

The Company deals with at least 20 different research groups within Pfizer, each
focused on a particular development function, each having little intercourse
with any other. This is typical among the Companys large, multinational
clients. The Company treats most of these as separate, virtually unrelated,
entities. In fiscal 2003, Pfizer restructured and repatriated their preclinical
development effort in Kalamazoo, MI, minimizing outsourcing for the short-term
and possibly long-term as well. This change significantly reduced revenue in
Evansville for fiscal 2003, and impacted fiscal 2004, as the business has still
not been fully replaced. Otherwise, the merger has not affected the
Companys relationships with the other sites under the Pfizer
umbrella.

There can be no assurance that the Companys business will not continue to
be dependent on continued relationships with Pfizer or other clients or, that
annual results will not be dependent on a few large projects. In addition, there
can be no assurance that significant clients in any one period will continue to
be significant clients in other periods. In any given year, there is a
possibility that a single pharmaceutical company may account for 5% or more of
the Companys total revenue. Since the Company does not have long-term
contracts with its clients, the importance of a single client may vary
dramatically from year to year.

6

Sales and Marketing

Capitalizing on its long history of innovation and technical excellence, the
current sales and marketing plan of the Company targets key accounts among the
top 200 global pharmaceutical companies and approaches smaller companies
opportunistically. The Company recognizes that its growth and customer
satisfaction depend upon its ability to continually improve client
relationships.

The Companys products and services are sold directly to the client. The
Company has thirteen employees on its business development staff and an equal
number providing technical and development support. In 2003, this team was
restructured and staffed with service specialists, some from acquired companies,
who are better addressing the needs of service clients. Sales at the
Companys preclinical toxicology unit in Evansville, Indiana and its
clinical research unit in Baltimore both improved in 2004 as a result, although
operations in both locations continued to incur losses. The Company also attends
multiple trade shows in many disciplines and has created a collection of web
sites, catalogs, training and technical support literature, media presentations,
branding, workshops and academic publications.

Sales, marketing and technical support are based in the Companys corporate
headquarters located in West Lafayette, Indiana. The Company also maintains
offices in Baltimore, Maryland; Evansville, Indiana; McMinnville, Oregon; and
Warwickshire, UK. For additional financial information relating to geographic
segments, please see Note 11 to the Notes to Consolidated Financial Statements
included in Item 8 of this report.

BAS Analytics, Ltd., a wholly owned, UK based subsidiary, provides a direct
liaison with research service clients in Europe and maintains a laboratory to
provide those services. BAS Instruments, Ltd., also a wholly owned, UK-based
subsidiary, manages most product sales in Europe. In addition, the Company has a
network of 18 established distributors covering Japan, the Pacific Basin, South
America, the Middle East, India, South Africa and Eastern Europe. All of the
Companys distributor relationships are managed from the Companys
headquarters in West Lafayette, Indiana. International growth is planned through
stronger local promotion to support the Companys distributor
network.

Contractual Arrangements

The Companys service contracts typically establish an estimated fee to be
paid for identified services. In most cases, some percentage of the contract
costs is paid in advance. While the Company is performing a contract, clients
often adjust the scope of services to be provided by the Company based on
interim project results. Fees are adjusted accordingly. Generally, the
Companys fee-for-service contracts are terminable by the client upon
written notice of 30 days or less for a variety of reasons, including the
clients decision to forego a particular study, the failure of product
prototypes to satisfy safety requirements, and unexpected or undesired results
of product testing. Cancellation or delay of ongoing contracts may result in
fluctuations in the Companys quarterly and annual results. The Company is
generally able to recover at least its invested costs when contracts are
terminated.

The Companys products business offers annual service agreements on most
product lines.

Backlog

The contracts pursuant to which the Company provides its services are terminable
upon written notice of 30 days or less. The Company maintains projections based
on bids and contracts to optimize asset utilization. Similarly, virtually all of
the Companys products are made to order. Long delivery material purchases
and inventory levels are planned to optimize asset utilization. Backlog may not
be a good indicator of future sales trends. Management does not believe that
backlog is material to an understanding of the Companys business taken as
a whole.

7

Competition

Services

The Company competes primarily with in-house research, development, quality
control and other support service departments of pharmaceutical and
biotechnology companies. There are also full-service Contract Research
Organizations (CROs) that compete in this industry. The largest CRO
competitors offering similar research services include:

        Covance, Inc.
        Pharmaceutical Product Development, Inc.
        AAIpharma, Inc.
        MDS Health Group Ltd.

CROs generally compete
on:

        regulatory compliance record and quality system
        previous experience
        medical and scientific expertise in specific therapeutic areas
        scientist-to-scientist relationships
        quality of contract research
        financial viability
        database management
        statistical and regulatory services
        recruiting investigators
        integrating information technology with systems to optimize research efficiency
        an international presence with strategically located facilities
        price

Several of the Companys competitors have significantly greater financial
resources than the Company.

Products

Culex®ABS:    Two small vendors have offered
simple, semi-automated blood sampling systems. However, the Company does not
believe that either vendor presents significant competition for Culex®. In
addition, the Company has established strong relationships with the largest
vendors of animal models who now provide catheterized Culex®
ready models to the Companys customers on a just-in-time basis,
further increasing convenience and lowering cost to the customer.

Bioanalytical Separation Systems:    The Company
competes with several large equipment manufacturers, including Agilent, Waters
Corporation and Perkin Elmer Corporation. Competitive factors include market
presence, product quality, reliability and price. The Company believes it
competes well in its niche markets because of its reputation and the quality of
its products, together with the technical assistance and service it offers. Many
of the Companys competitors are much larger and have greater resources
than the Company, which makes it difficult for the Company to capture business
from clients other than those who need the Companys unique
capabilities.

Chemical Analyzers/Diagnostic kits/Vetronics/in vivo sampling
devices:    There are few competitors in this area of
the Companys business. The Company is the largest vendor in these very
small, technically demanding niches.

Government Regulation

The Company is subject to various regulatory requirements designed to ensure the
quality and integrity of its data and products. These regulations are governed
primarily under the Federal Food, Drug and Cosmetic Act, as well as by
associated Good Laboratory Practice (GLP), Good Manufacturing
Practice (GMP), and Good Clinical Practice (GCP)
guidelines administered by the FDA. The standards of GLP, GMP, and GCP are
required by the FDA and by similar regulatory authorities around the world.
These guidelines demand rigorous attention to employee training; detailed,
authorized documentation; equipment validation; careful tracking of changes and
routine auditing of compliance. Noncompliance with these standards could result
in disqualification of project data collected by the Company. Material violation
of GLP, GMP, or GCP guidelines could result in additional regulatory sanctions
and, in severe cases, could also result in a discontinuance of selected Company
operations.

8

Analytical Services

Laboratories that provide information included in INDs, NDAs and PLAs must
conform to regulatory requirements that are designed to ensure the quality and
integrity of the testing process. Most of the Companys contract research
services are subject to government standards for laboratory practices that are
embodied in guidelines for GLP. The FDA and other regulatory authorities require
that test results submitted to such authorities be based on studies conducted in
accordance with GLP. These guidelines are set out to help the researcher perform
work in compliance with a pre-established plan and standardized procedures.
These guidelines include but are not restricted to:

        Resources  organization, personnel, facilities and equipment
        Rules  protocols and written procedures
        Characterization  test items and test systems
        Documentation  raw data, final report and archives
        Quality assurance unit  formalized internal audit function

Preclinical Services

The Company must also maintain reports for each study for specified periods for
auditing by the study sponsor and by the FDA or similar regulatory authorities
in other parts of the world. Noncompliance with GLP can result in the
disqualification of data collection during the preclinical trial

The Companys animal research facilities are subject to a variety of
federal and state laws and regulations, including The Animal Welfare Act and the
rules and regulations enforced by the United States Department of Agriculture
(USDA) and the National Institutes of Health (NIH).
These regulations establish the standards for the humane treatment, care and
handling of animals by dealers and research facilities. The Companys
animal research facilities maintain detailed standard operating procedures and
the documentation necessary to comply with applicable regulations for the humane
treatment of the animals in its custody. Besides being licensed by the USDA as a
research facility, this business is also accredited by the Association for
Assessment and Accreditation of Laboratory Animal Care International
(AAALAC) and has registered assurance with the NIH.

Clinical Services

The Companys Clinical Research Unit in Baltimore is principally subject to
GCP and GLP guidelines that cover activities such as obtaining informed consent,
verifying qualifications of investigators, complying with Standard Operating
Procedures (SOP), reporting adverse reactions to drugs and
maintaining thorough and accurate records. The Company must maintain source
documents for each study for specified periods. Such documents are frequently
reviewed by the study sponsor during visits to the Companys facility and
may be reviewed by the FDA during audits.

The Company is subject to regulation and inspection by local, state, federal and
foreign agencies where the Companys facilities are located. The Company
has not experienced any significant problems to date in complying with the
regulations of such agencies and does not believe that any existing or proposed
regulations will require material capital expenditures or changes in its method
of operation.

9

Quality Assurance and Information Technology

To assure compliance with applicable regulations, the Company has established
quality assurance programs at its facilities that audit test data, train
personnel and review procedures and regularly inspect facilities. In addition,
FDA regulations and guidelines serve as a basis for the Companys SOPs
where applicable. In fiscal 2004 and 2003, the Company endeavored to standardize
SOPs across all relevant operations. This standardization is an ongoing process.
In addition the Company purchased software to ensure compliant documentation,
handling and reporting of all laboratory generated study data. In fiscal 2004
the Company purchased similar 21 CFR part 11 compliant software for its
preclinical research group and is currently installing and validating that
software.

Also in fiscal 2004, the Company initiated implementation of a new Enterprise
Resource Planning (ERP) system, which is scheduled to be launched at
all the Companys locations in the third quarter of fiscal 2005. The
introduction of a new ERP system is part of the Companys response to the
Sarbanes-Oxley Act (the Act). The Company determined that it was not
practicable to comply with the control, documentation and testing requirements
of Section 404 of the Act while operating on different, decentralized, obsolete
systems at its various locations. As part of the implementation of the new
system, documentation will be developed, and testing procedures initiated, in
preparing for managements assessment and report on internal controls over
financial reporting required by the Act for fiscal 2005. Although the Company is
working diligently to ensure that the ERP system and related procedures will be
adequately installed and successfully tested by September 30, 2005, there can be
no assurance that all necessary procedures required by the Act will be completed
by that date.

Controlled, Hazardous, and Environmentally Threatening
Substances

Some of the Companys development and testing activities are subject to the
Controlled Substances Act administered by the Drug Enforcement Agency
(DEA), which strictly regulates all narcotic and habit-forming
substances. The Company maintains restricted-access facilities and heightened
control procedures for projects involving such substances due to the level of
security and other controls required by the DEA. In addition, the Company is
subject to other federal and state regulations concerning such matters as
occupational safety and health and protection of the environment.

Our U.S. laboratories are subject to licensing and regulation under federal,
state and local laws relating to hazard communication and employee right-to-know
regulations, the handling and disposal of medical specimens and hazardous waste,
as well as the safety and health of laboratory employees. All of our
laboratories are subject to applicable federal and state laws and regulations
relating to the storage and disposal of all laboratory specimens including the
regulations of the Environmental Protection Agency, the Department of
Transportation, the National Fire Protection Agency and the Resource
Conservation and Recovery Act. Although we believe that the Company is currently
in compliance in all material respects with such federal, state and local laws,
failure to comply could subject the Company to denial of the right to conduct
business, fines, criminal penalties and other enforcement actions.

The regulations of the U.S. Department of Transportation, the U.S. Public Health
Service and the U.S. Postal Service apply to the surface and air transportation
of laboratory specimens. The Companys laboratories also comply with the
International Air Transport Association regulations which govern international
shipments of laboratory specimens. Furthermore, when materials are sent to a
foreign country, the transportation of such materials becomes subject to the
laws, rules and regulations of such foreign country.

Safety

In addition to its comprehensive regulation of safety in the workplace, the
Occupational Safety and Health Administration has established extensive
requirements relating to workplace safety for health care employers whose
workers may be exposed to blood-borne pathogens such as HIV and the hepatitis B
virus. These regulations, among other things, require work practice controls,
protective clothing and equipment, training, medical follow-up, vaccinations and
other measures designed to minimize exposure to chemicals, and transmission of
blood-borne and airborne pathogens. Furthermore, relevant employees of the
Company receive initial and periodic training focusing on compliance with
applicable hazardous materials regulations and health and safety
guidelines.

10

HIPAA

The Department of Health and Human Services has promulgated final regulations
under the Health Insurance Portability and Accountability Act of 1996
(HIPAA) that govern the disclosure of confidential medical
information in the United States. The Company has had a global privacy policy in
place since January 2001, which includes a designated privacy officer, and
believe that we are in compliance with the current EU (European Union) and HIPAA
requirements. Nevertheless, we will continue to monitor our compliance with
these new regulations and we intend to take appropriate steps to ensure
compliance as these and other privacy regulations come into effect.

Product Liability and Insurance

The Company maintains product liability and professional errors and omissions
liability insurance, providing approximately $6.0 million in coverage on a
claims-made basis. Additionally, in certain circumstances the Company seeks to
manage its liability risk through contractual provisions with clients requiring
the Company to be indemnified by the client or covered by clients product
liability insurance policies. Also, in certain types of engagements the Company
seeks to limit its contractual liability to clients to the amount of fees
received by the Company. The contractual arrangements are subject to negotiation
with clients, and the terms and scope of such indemnification, liability
limitation and insurance coverage vary by client and project.

Research and Development

In fiscal year 2004, the Company spent $1.1 million on research and development,
a 17% reduction from fiscal 2003. Separate from the Companys contract
research services business, the Company maintains applications research and
development to enhance its products business. Expenditures cover hardware and
software engineering costs, laboratory supplies, animals, drugs/reagents, labor,
prototype development and laboratory demonstrations of new products and
applications for those products.

Hardware and software engineering and prototype development in 2004 continued to
generate Culex®-related products. Laboratory demonstrations are published in
peer-reviewed journals, scientific seminars or at scientific association
meetings as promotional tools for existing and new products. Culex®-related
products and demonstrations consumed most of our research and development
dollars in 2004. The Company also makes small expenditures in novel research and
development, some under partial grants

Intellectual Property

The Company believes that its patents, trademarks, copyrights and other
proprietary rights are important to its business and, accordingly, it actively
seeks protection for those rights both in the United States and abroad. Where
the Company deems it to be an appropriate course of action, it will vigorously
prosecute patent infringements. The Company does not believe, however, that the
loss of any one of its patents, trademarks, copyrights or other proprietary
rights would be material to its consolidated revenues or earnings.

The Company currently holds six federally registered trademarks and has two
pending federal trademark applications, as well as one copyright registration
for software. The Company also maintains a small pool of issued and pending
patents. Most of these patents are related to the Companys Culex® or
in vivo product line. Of these patents, most are either issued or pending in the
United States, although there are also patents issued and pending in the
European Union and Japan. Although the Company believes that at least two of
these patents are important to the Culex® product line, the success of the
Culex® business is not dependent on the Companys intellectual property
rights because the Company also generates client value through continuing client
support, hardware and software upgrades, system reliability and accuracy. In
addition to these formal intellectual property rights, the Company relies on
trade secrets, unpatented know-how and continuing applications research which it
seeks to protect through means of reasonable business procedures, such as
confidentiality agreements. The Company believes that the greatest value that it
generates for its clients comes from these trade secrets, know-how and
applications research.

11

The Company believes that its patents, trademarks, copyrights and other
proprietary rights are important to its business and, accordingly, it actively
seeks protection for those rights both in the United States and abroad. Where
the Company deems it to be an appropriate course of action, it will vigorously
prosecute patent infringements. The Company does not believe, however, that the
loss of any one of its patents, trademarks, copyrights or other proprietary
rights would be material to its consolidated revenues or earnings.

Raw Materials

There are no specialized raw materials that are particularly essential to the
Companys business, and the Company has a variety of alternative suppliers
for its essential components.

Employees

At September 30, 2004, the Company had 330 full-time employees. All employees
enter into confidentiality agreements intended to protect the Companys
proprietary information. The Company believes that its relations with its
employees are good. None of the Companys employees are represented by a
labor union. The Companys performance depends on its ability to attract
and retain qualified professional, scientific and technical staff. The level of
competition among employers for skilled personnel is high. The Company believes
that its employee benefit plans enhance employee morale, professional commitment
and work productivity and provide an incentive for employees to remain with the
Company.

Executive Officers of the Registrant

The following information concerns the persons who served as the executive
officers of the Company as of September 30, 2004. Except as indicated in the
following paragraphs, the principal occupations of these persons has not changed
in the past five years. Officers are elected annually at the annual meeting of
the board of directors.

|Name                      | Age | Position                                                          
|------------------------- | --- | ------------------------------------------------------------------
|Peter T. Kissinger, Ph.D. | 60  | Chairman of the Board; President; Chief Executive Officer         
|Ronald E. Shoup, Ph.D.    | 53  | Chief Operating Officer, BASi Contract Research Services; Director
|Michael R. Cox            | 58  | Vice President, Finance; Chief Financial Officer; Treasurer       
|Candice B. Kissinger      | 53  | Senior Vice President, Marketing; Secretary and Director          
|Craig S. Bruntlett, Ph.D. | 55  | Senior Vice President, International Sales                        
|Lina L. Reeves-Kerner     | 54  | Vice President, Human Resources                                   
|Michael P. Silvon, Ph.D.  | 57  | Vice President, Planning and Development                          

Peter T. Kissinger, Ph.D. founded the Company in 1974 and has served as
its Chairman, President and Chief Executive Officer since 1974. He is also a
part-time Professor of Chemistry at Purdue University, where he has been
teaching since 1975. Dr. Kissinger has a Bachelor of Science degree in
Analytical Chemistry from Union College and a Ph.D. in Analytical Chemistry from
the University of North Carolina.

Dr. Kissinger is a highly recognized pioneer in hydrodynamic electroanalytical
techniques for the neurosciences, modern liquid chromatography and in vivo
methodology for drug metabolism. Dr. Kissinger has published over 220 scientific
papers and has presented more than 400 invited lectures. He is a Fellow of the
AAPS and the AAAS and was a finalist for Ernst & Young Entrepreneur of the
Year Award ® in the Indiana Heartland region for 2001 and 2002.

Ronald E. Shoup, Ph.D. serves as Chief Operating Officer of the
Companys Contract Research Services and is Managing Director of BAS
Analytics, Ltd. in the UK. His current responsibilities include directing
operations at the Companys Contract Research Services sites. He joined the
Company in 1980 as an applications chemist, became Research Director in 1983 and
launched the Contract Research Services group within the Company in 1988. Dr.
Shoup has a Bachelor of Science degree in Mathematics and Chemistry from Purdue
University and then attended Michigan State and Purdue University for his Ph.D.
in Analytical Chemistry. He has served on the Companys board of directors
since 1991.

12

Dr. Shoup has served on the editorial board of the Journal of Chromatography,
participated in NIH Special study sections, and is a member of the external
advisory board to the Purdue University Department of Chemistry. He has
published over 40 scientific papers.

Michael R. Cox has been Vice President, Finance, Chief Financial Officer
and Treasurer since April 2004. He was Vice President, Finance and CFO of
Integrity Pharmaceutical Corporation, a private specialty pharmaceutical
company, from October, 2002 until its acquisition and merger in March, 2003.
Prior to that he was Senior Vice President, Finance of Intergen Company, a
private biotech manufacturing and research products company, from 1997 until its
acquisition in 2001, and continued with the acquirer, Serologicals Corporation,
on special projects until joining Integrity. Prior to that, Mr. Cox held various
executive positions in two environmental services firms and an investment firm.
He was a partner in Touche Ross & Co., where he began his career after
obtaining a BS in business administration from the University of North
Carolina.

Candice B. Kissinger currently devotes all of her time to branding,
client relationship management, sales, product development, and managing
installation and service for in vivo products and services, principally the
Culex® ABS. She was named Senior Vice President, Marketing in January 2000
and is currently Director of Research. From 1981 to 2000 she served as Vice
President, International Sales and Marketing. Ms. Kissinger has a Bachelor of
Science degree in Microbiology from Ohio Wesleyan University and a Master of
Science degree in Food Science from the University of Massachusetts. Dr. Peter
Kissinger is the husband of Ms. Kissinger. She has served as a director and
Secretary of the Company since 1978.

Craig S. Bruntlett, Ph.D. has been Senior Vice President of International
Sales since January 2000. From 1992 to 1999 he was Vice President,
Electrochemical Products. From 1980 to 1990, Dr. Bruntlett was Director of New
Products Development for the Company. Dr. Bruntlett has a Bachelor of Arts
degree in Chemistry and Mathematics from St. Cloud State University in Minnesota
and a Ph.D. in Chemistry from Purdue University.

Lina L. Reeves-Kerner has been Vice President, Human Resources since 1995
and is responsible for the administrative support functions of the Company,
including shareholder relations, human resources and community relations. From
1980 to 1990, Ms. Reeves-Kerner served as an Administrative Assistant with the
Company. Ms. Reeves-Kerner has a Bachelor of Science degree in Business
Administration from Indiana Wesleyan University.

Michael P. Silvon, Ph.D. has been Vice President Planning and Development
since March 1997, with responsibility for mergers and acquisitions, and investor
relations. Dr. Silvon served as General Manager of BAS Evansville from 2000
through 2002 and directed its expansion. Prior to January 1997, Dr. Silvon was
principal in his own consulting firm and Vice President Sales and Marketing at
Hi-Port, Inc. in Houston, Texas. Before October 1993, Dr. Silvon was Regional
Business Manager, Americas-Fine Chemicals for Zeneca, Inc. He has a Bachelor of
Science in Chemistry from Loyola University of Chicago, a Master of Business
Administration from Sacred Heart University and a Ph.D. in Chemistry from the
University of Vermont.

Item 2.    Properties.

The Company operates in the following locations all of which are owned by the
Company, except as otherwise indicated:

    West Lafayette,
IN:    principal executive offices are located at 2701
Kent Avenue, West Lafayette, Indiana 47906, and constitutes multiple buildings
with approximately 135,000 square feet of operations, manufacturing, and
administrative space. Both the services unit and the products unit conduct
operations at this facility. A new 20,000 square foot ADME preclinical research
facility became fully functional in April, 2004. It is custom-designed to
provide contract pharmacokinetic and ADME research services based on its
Culex® Automated Blood Sampling system. Both the new facility and the prior
portion of the building have been financed by mortgages.

13

    BAS Evansville occupies 10 buildings with
roughly 100,000 square feet of operating and administrative space on 52 acres.
Most of this site is engaged in preclinical toxicology testing of developmental
drugs in animal models. A recent addition was financed by a mortgage.

    BASi Clinical Research Unit (BASi Maryland)
in Baltimore, MD occupies a seven story, 126,000 square foot historic building
in downtown Baltimore. On January 5, 2005, this building was sold to a developer
and the Company and the developer entered into a three-year lease back for
approximately 85% of the space in the building. This site contains a 110 bed,
three ward, Phase I Clinical Trials facility and a roughly 20,000 square foot
analytical laboratory along with administrative offices committed to recruitment
and enrollment of study participants, medical and clinical trials staff, data
management, and later phase Clinical Trials Management. The Company intends to
use the lease back period to locate, design and construct suitable new space in
the Baltimore area for its operations. The building is owned and is not
mortgaged.

    BAS Analytics and BAS Instruments,
Warwickshire, UK contains the Companys contract services and instruments
operations in roughly 12,000 square feet of laboratories, sales and technical
support services in the United Kingdom.

    BASi Northwest Laboratory is in
McMinnville, OR, approximately 40 miles from Portland, OR. The Company leases
roughly 8,600 square feet of laboratory and administrative space, principally
used for bioanalytical services.

The Company believes that its facilities are adequate for the Companys
operations and that suitable additional space will be available if and when
needed. The terms of any mortgages and leases for the above properties are
detailed in Item 7 and Notes 4, 6 and 7 to the Notes to Consolidated Financial
Statements.

14

Item 3.    Legal Proceedings.

Not applicable.

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

Not applicable.

PART II

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

You can find information regarding the market for the Companys common
shares and related stockholder matters under the heading Common
Shares in our 2004 Annual Report. That information is incorporated herein
by reference.

Equity Compensation Plan Information

The Company maintains stock option plans that allow for the granting of options
to certain key employees and directors of the Company. The following table gives
information about equity awards under the stock option plans of the Company:

|Plan Category                                              | Number of Securities
to be Issued upon
Exercise ofOutstanding Options | Weighted Average
Exercise Price ofOutstanding Options | Number of Securities
Remaining Available for
Future Issuance under
the Equity Compensation
Plan (Excluding SecuritiesReflected in First Column)
|---------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |                                                                       |                                                       |                                                                                                                                                
|                                                          
|Equity compensation plans not approved by security holders |                                                                       |                                                       |                                                                                                                                                
|Total                                                      |                                                                       |                                                       |                                                                                                                                                

For additional information regarding the Company's stock option plans, please
see Note 9 to the Notes to Consolidated Financial Statements included in Item 8
of this report.

Item 6.    Selected Financial Data.

You can find Selected Financial Data for each of our five most recent fiscal
years in our 2004 Annual Report under Selected Consolidated Financial
Data. That information is incorporated herein by reference.

15

Item 7.    Management's Discussion and Analysis of Financial
Condition and Results of Operations.

This report contains statements that constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Those statements appear in a number of places in this Report and may include
statements regarding the intent, belief or current expectations of the Company
or its management with respect to, but are not limited to (i) the Companys
strategic plans; (ii) trends in the demand for the Companys products;
(iii) trends in the industries that consume the Companys products; (iv)
the Companys ability to refinance its debt; (v) the ability of the Company
to develop new products; and (vi) the ability of the Company to make capital
expenditures and finance operations. Readers are cautioned that any such forward
looking statements are not guarantees of future performance and involve risks
and uncertainties. Actual results may differ materially from those in the
forward looking statements as a result of various factors, many of which are
beyond the control of the company.

In addition, the Company has based these forward-looking statements on its
current expectations and projections about future events. Although the Company
believes that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based upon those
assumptions also could be incorrect. The following discussion and analysis
should be read in conjunction with Selected Consolidated Financial Data and the
Companys Consolidated Financial Statements and notes thereto included or
incorporated by reference elsewhere in this Report. In addition to the
historical information contained herein, the discussions in this Report may
contain forward-looking statements that involve risks and uncertainties which
are discussed in Exhibit 99 to this Form 10-K. The Companys actual results
could differ materially from those discussed in the forward-looking
statements.

Overview

The business of Bioanalytical Systems, Inc. is very much dependent on the level
of pharmaceutical and biotech companies efforts in new drug discovery and
approval. Our services segment is the direct beneficiary of these efforts,
through outsourcing by these companies of research work, and our products
segment is the indirect beneficiary, as increased drug development leads to
capital expansion providing opportunities to sell the equipment we produce and
the consumable supplies we provide that support our products.

Developments within the industries we serve have a direct, and sometimes
material, impact on our operations. One significant development in the past
decade has been the continuing consolidation among large pharmaceutical
corporations. We believe that, on the whole, this consolidation should have a
positive impact on our business, as these increasingly larger pharmaceutical
companies will devote their internal resources, our main competitor, to only
those drug candidates with the potential to have a material impact on their
operations, and will outsource more of their lesser opportunities. Additionally,
many drug candidates will not meet the financial hurdles established by the
major pharmaceutical companies, and will be developed by smaller, specialty
pharmaceutical companies that do not possess internal capabilities to test and
analyze the drug candidate, or have the capability to scientifically monitor the
product once approved. Offsetting those potential positive impacts, the major
pharmaceutical companies tend to reevaluate their development programs after
major acquisitions, which sometimes cause them to defer, or cancel, work that we
were scheduled to perform. We are also at risk that a significant client for us
may be acquired by a corporation that prefers to perform the work internally, or
has a long-standing relationship with one of our competitors. We anticipate that
as companies in our markets consolidate, our competitors will also consolidate,
which will result in fewer, but much stronger, competitors for our
business.

Two very significant demographic developments are impacting pharmaceutical
companies, and therefore, our markets. The first is the well-documented aging of
Western populations, with the incident increase of diseases associated with
aging and the increasing periods of treatment. The other is the so-called
genomic era, where the knowledge of the genome, including human and other
organisms, is spawning the technologies and investment to develop additional
therapies. We believe that both will positively impact our markets by increasing
the amount of drug development and monitoring activity.

Research services are capital intensive. The investment in equipment and
facilities to serve our markets is substantial and continuing. While our
physical facilities are excellent to meet market needs for the near term, rapid
changes in automation, precision, speed and technologies necessitate a constant
investment in equipment and software to meet market demands. We are also
impacted by the heightened regulatory environment and the need to improve our
business infrastructure to support our increasingly diverse operations, which
will necessitate additional capital investment. Our ability to generate capital
to reinvest in our capabilities, both through operations and financial
transactions, is critical to our success. While we are currently committed to
fully utilizing recent additions to our capacity, sustained growth will require
additional investment in future periods.

One of the more important factors in our profitability is the utilization of our
capacity. In the past two years, we have added significant new capacity through
acquisitions in Baltimore, Maryland and McMinnville, Oregon, and through facility
expansions in West Lafayette and Evansville, Indiana. These expansions created a
higher level of basic operating expenses. Those related to productive capacity
are included in cost of services. As a result, after expansion, while we are
developing the sales to fill these facilities, our percentage margins on
services have declined because many of these costs are the same as they will be
at full capacity, but are being spread over less-than-capacity revenues. While
the capacity and capabilities added have the potential to positively impact
future operating results, their costs have had a negative impact in the current
year.

16

Results of Operations

The following table summarizes the consolidated statement of operations as a
percentage of total revenues:

|                                  | Year Ended September 30,
|--------------------------------- | ------------------------
|
|Service revenue                   |                         
|Product revenue                   |                         
|                                  |                         
|Total revenue                     |                         
|                                 
|Cost of service revenue (a)       |                         
|Cost of product revenue (a)       |                         
|                                  |                         
|Total cost of revenue             |                         
|                                 
|Gross profit                      |                         
|                                 
|Total operating expenses          |                         
|                                  |                         
|                                 
|Operating income                  |                         
|                                 
|Other (expense)                   |                         
|                                  |                         
|                                 
|Income (loss) before income taxes |                         
|                                 
|Income tax expense (benefit)      |                         
|                                  |                         
|Net income (loss)                 |                         
|                                  |                         

(a)        
Percentage of service and product revenues, respectively.

Year Ended September 30, 2004, Compared with Year Ended September 30,
2003

Total revenue for the year ended September 30, 2004 increased 24.5% to $37.2
million from $29.8 million for the year ended September 30, 2003. Service
revenue increased to $24.9 million for the year ended September 30, 2004 from
$20.0 million for the year ended September 30, 2003. The inclusion of two
acquired businesses for the entire year in the current fiscal year, compared to
inclusion from the date of acquisition in the prior year, caused a 9% increase
in year-to-year revenues. The other 16% of revenue growth came from increased
sales at all operating locations, except West Lafayette research services, which
had a decline. These increases were the result of increased sales efforts in the
Baltimore and Evansville locations, and improvement in our facilities from
recent capital expenditures. Product revenue increased to $12.2 million for the
year ended September 30, 2004 from $9.9 million for the year ended September 30,
2003, primarily due to sales of the Culex® Automated Blood Sampling System.
The increase in Culex® sales is a result of continuing acceptance of the
technology by new customers, as well as strong re-orders by existing customers.
Inflation in prices did not have a material impact on sales
increases.

Costs of revenue increased 31.2% to $25.6 million for the year ended September
30, 2004 from $19.4 million for the year ended September 30, 2003. This increase
of $6.2 million was due to the inclusion of the acquired businesses mentioned in
the revenue discussion and the costs of additional revenues. Cost of revenue as
a percentage of revenues for services increased due to the lower utilization of
capacity of the acquired businesses  costs of idle capacity are charged to
cost of service revenue. Costs of revenue for the Companys products
segment decreased to 34.9% as a percentage of product revenue for the year ended
September 30, 2004 from 38.6% of product revenue for the year ended September
30, 2003, as a result of product sales growth being driven by Culex® sales,
which command higher margins than the Companys older product
lines.

17

Selling expenses for the year ended September 30, 2004 decreased by 5.3% to $2.7
million from $2.9 million during the year ended September 30, 2003, due to
decreased headcount in sales. Research and development expenses, which are net
of grant reimbursements, for the year ended September 30, 2004 decreased 17.1%
to $1.1 million from $1.3 million for the year ended September 30, 2003. The
decrease of $227,000 is primarily due to reducing the number of research
projects in the current year.

General and administrative expenses, for the year ended September 30, 2004
increased 37.7% to $7.5 million from $5.4 million for the year ended September
30, 2003, as a result of the acquired business mentioned above. The Company also
incurred $500,000 of non-recurring consulting expenses necessitated by turnover
in the Companys finance department for the first six months of fiscal
2004. The Company utilized a contract chief accounting officer and additional
financial consultants to compensate for the resignation of both the chief
financial officer and chief accounting officer.

Other income (expense), net, was $(861,000) in the year ended September 30, 2004
as compared to $(230,000) in the year ended September 30, 2003, as a result of
the increase in interest expense from $710,000 to $943,000 due to increased
borrowings for the acquisitions and additional construction of facilities, and a
non-recurring gain from sale of an excess facility of $363,000 in fiscal
2003.

The Companys effective tax rate was a benefit of 66.6% for 2004 as a
result of having a U.S. taxable loss that can be carried back for refunds
against prior years taxes, coupled with profitable operations in the
United Kingdom, where the Company is utilizing loss carryforwards to offset
taxable income. The Company has tax net operating loss carryforwards for its
subsidiaries in the United Kingdom. Such carryforwards, which have an indefinite
life, are available to offset taxable income generated by those subsidiaries as
provided by United Kingdom tax regulations. The prior years tax rate was
the result of taxable U.S. income with a foreign loss generating no offsetting
benefit.

As a result of the above, the Company lost $0.04 per share in fiscal 2004, both
basic and diluted, compared to net income in fiscal 2003 of $0.02 per share,
both basic and diluted.

Year Ended September 30, 2003, Compared with Year Ended September 30,
2002

Revenue for the fiscal year ended September 30, 2003 increased 12.5% to $29.8
million from $26.5 million for the fiscal year ended September 30, 2002. Net
income for fiscal 2003 was $0.09 million, or $0.02 per diluted share, compared
to $1.1 million, or $0.23 per diluted share, for fiscal 2002. Service revenue
increases over the prior year were primarily the result of the Companys
acquisitions and bioanalytical services growth. Product sales declined for the
year due to weak capital spending among pharmaceutical developers but saw
significant gains in the fourth quarter of fiscal 2003.

Cost of revenue for the year ended September 30, 2003 was $19.4 million, or 65%
of revenue, compared to $15.9 million, or 60% of revenue, for the year ended
September 30, 2002. The integration of the BASi Clinical Research Unit, (the
former PharmaKinetics Laboratories, Inc., (PKLB) acquired in June
2003) and BASi Northwest Laboratories (the former LC Resources, Inc.
(LCR) acquired in December 2002) into the Company adversely impacted
the Companys earnings in fiscal 2003. Additionally, underutilization of
recently added preclinical services capacity, due primarily to the Pfizer
Pharmacia merger, had significant negative effects on the Companys results
of operations in fiscal 2003.

Research and development expenses, which are net of grant reimbursements, for
the year ended September 30, 2003 decreased 13.3% to $1.3 million from $1.5
million for the year ended September 30, 2002. The decrease is primarily due to
a reduction in research staff, most of who were not committed to in vivo
products and services.

General and administrative expenses, for the year ended September 30, 2003
increased 20% to $5.4 million from $4.5 million for the year ended September 30,
2002, primarily as a result of the acquisitions and the addition of strategic
management positions.

Other income (expense), net, was $(229,000) in the year ended September 30, 2003
as compared to $(79,000) in the year ended September 30, 2002. This increase was
attributable to the addition of new debt in late October 2002 resulting in
increased interest expense, which was partially offset by gains on the sale of
property and equipment in 2003.

18

The Companys effective tax rate for 2003 was 84.7%, compared to 30.9% for
fiscal 2002. The foreign tax net operating loss carryforwards result in a
reduced consolidated effective tax rate in periods where taxable income is
generated by these foreign subsidiaries, as in 2002. In fiscal 2003, these
foreign operations generated an after tax loss. These losses are not tax
deductible, which, when consolidated with the Companys domestic
operations, resulted in lower consolidated net taxable income and a higher
overall effective tax rate.

As a result of the above, the Company earned $0.02 per share, both basic and
diluted, compared to earnings of $0.23 per share in the prior year, both basic
and diluted.

Liquidity and Capital Resources

Comparative Cash Flow Analysis

Since its inception, the Companys principal sources of cash have been cash
flow generated from operations and funds received from bank borrowings and other
financings. At September 30, 2004, the Company had cash and cash equivalents of
$0.8 million compared to $1.4 million at September 30, 2003.

The Companys net cash provided by operating activities was $2.8 million
for the year ended September 30, 2004. Cash provided by operations during the
year ended September 30, 2004 consisted of net loss of $203,354, net non-cash
charges of $3.5 million and net cash used of $0.4 million related to changes in
operating assets and liabilities. The most significant items affecting the
change in operating assets and liabilities was an increase in accounts
receivable of $1.5 million and an increase in refundable income taxes of $0.5
million, offset by an increase in customer advances of $1.2 million. The
increases in accounts receivable and customer advances are the result of higher
service revenue activity at the end of fiscal 2004 over 2003. The increase in
refundable income taxes is a result of the current years loss.

Cash used by investing activities decreased to $3.5 million for the year ended
September 30, 2004 from $4.7 million and $5.3 million for the years ended
September 30, 2003 and 2002 respectively, primarily due to the completion of
construction projects in Evansville and West Lafayette in fiscal 2004, and no
expenditures in fiscal 2004 for acquisitions.

Cash provided by financing activities for the year ended September 30, 2004 was
$0.3 million, compared to $2.4 million and $3.7 million respectively for fiscal
2003 and 2002. This decrease was primarily due to completion of the construction
and acquisition activity of the prior two fiscal years, reducing the need for
new financing.

The Company announced in December, 2004 that it had reached a definitive
agreement to sell and lease back its facility in Baltimore, Maryland. The sales
price is $6.5 million, and the Company will lease the space for three years,
during which time it will select and prepare a new site for its operations in
the Baltimore area. This transaction was completed on January 5, 2005. After
transaction expenses, the Company generated approximately $6 million in cash
from this transaction, which was used to reduce outstanding debt and increase
working capital.

Capital Resources

Total expenditures by the Company for property and equipment were $3.6 million
(funded by revolving line of credit and the construction line of credit), $5.2
million (funded by long-term debt and the construction line of credit) and $4.7
million (funded by revolving line of credit), in fiscal 2004, 2003 and 2002,
respectively. Expenditures made in connection with the expansion of the
Companys operating facilities in West Lafayette and Evansville, Indiana
and in the United Kingdom, physical plant improvements in Baltimore (2003), and
purchase or upgrade of laboratory equipment account for the largest portions of
these expenditures in each year. The decline in capital expenditures in fiscal
2004 is the result of the completion of expansion programs. Capital investments
for the purchase of additional laboratory equipment are driven by anticipated
increases in research services to be provided by the Company, and by the
replacement or upgrading of the Companys equipment. Although the Company
may consider strategic acquisition opportunities it does not intend to
aggressively pursue additional acquisitions until the Company is fully utilizing
existing capacity.

19

During 2001, the Company commenced construction to expand facilities at its
preclinical site in Evansville, Indiana. Construction of these preclinical
facilities was completed in March 2003 at a total cost of $3.5 million. During
2002, the Company began expanding facilities at its site in West Lafayette,
Indiana. Phase one of this facility was completed in April 2004 at a cost of
$3.5 million. Phases two and three will be completed as business justifies.
Construction on the West Lafayette facilities is expected to have a total cost
of $4.0 million when complete. The Company obtained financing for these
construction projects with a bank (discussed below).

On December 13, 2002, the Company acquired LCR, a privately held company with
headquarters in Walnut Creek, California and contract research laboratory in
McMinnville, Oregon. The Company purchased all of the outstanding shares of LCR
for approximately $2.0 million. The purchase price consisted of approximately
$200,000 in cash and $1.8 million in 10% subordinated notes maturing on October
1, 2007. The holders of the notes will have the option to require the Company to
repay up to 20% of the outstanding principal balance of the notes on each
October 1 prior to maturity, commencing October 1, 2003. These payments were
made in both 2003 and 2004.

On June 30, 2003, the Company completed its acquisition of PKLB through the
exchange of approximately 228,857 shares of the Company common stock valued at
approximately $1.2 million for all of the outstanding common stock and Class B
preferred stock of PKLB, and the issuance of $4.0 million of 6% convertible
notes payable due 2008 for all of PKLBs Class A redeemable preferred
stock. The notes are convertible at $16 per share into shares of the
Companys common stock (no principal payments or conversions have occurred
as of December 31, 2004). The Company paid cash aggregating approximately $1.5
million representing acquisition costs and cash advances made to PKLB from June
2002 through May 2003.

On October 29, 2002, the Company obtained new credit agreements with two
different banks that completely refinanced and replaced all outstanding bank
debt arrangements that were in place at September 30, 2002. These credit
agreements provide for a $6 million revolving line of credit with a bank and a
mortgage note payable and two construction term loans payable with another bank
aggregating $10 million. The construction term loans were converted to mortgages
under the terms in June 2004. Borrowings under these credit agreements are
collateralized by substantially all assets related to the Companys
operations and all common stock of the Companys United States subsidiaries
and 65% of the common stock of its non-United States subsidiaries, and the
assignment of a life insurance policy on the Companys Chairman and CEO.
Under the terms of these credit agreements, the Company has agreed to restrict
advances to subsidiaries, limit additional indebtedness and capital expenditures
as well as to comply with certain financial covenants outlined in the borrowing
agreements. These credit agreements contain cross-default provisions. Details of
each debt issue are discussed below.

The maximum amount available under the terms of the Companys revolving
line of credit is $6 million with outstanding borrowings limited to the
borrowing base as defined in the agreement. As of September 30, 2004 the
outstanding balance on this line of credit was $2,825,661. Interest accrues
monthly on the outstanding balance at the banks prime rate to prime rate
plus up to 125 basis points or at the Eurodollar rate plus 200 to 350 basis
points, as elected by the Company. As of September 30, 2004 interest on the
entire outstanding balance was based on the prime rate of 4.75%. The Company
pays a fee equal to 25 to 50 basis points, depending on certain financial
ratios, on the unused portion of the line of credit. On January 5, 2005, the
Company amended and restated this facility with a successor to its lead bank for
a three year term, and paid off all outstanding advances with the proceeds from
the sale of its Baltimore building (discussed above). Terms of this facility are
essentially the same as the replaced facility, and available borrowings under
the formula at January 5, 2005 were approximately $4.5 million.

On October 29, 2002 the Company obtained a $2,250,000 construction loan with a
bank which expires November 1, 2012. The entire amount was utilized and
converted to a mortgage in June, 2004. At the same time, the company fixed its
interest rate on this loan for three years at 5.69% per annum. At September 30,
2004 there was $2,222,257 outstanding, with monthly payments of principal and
interest of $15,755 until June 1, 2007, when they adjust under terms of the
note.

The Company has a mortgage note on recently completed laboratories at Evansville
of $2,058,696 as of September 30, 2004, which matures on May 1, 2008. The loan
requires monthly payments of principal and interest of $18,241 until May 17,
2007, when they adjust under the terms of the note, and a final principal
payment estimated to be around $1.6 million due May 1, 2008. The note bears
interest at 5.69% through June, 2007.

20

The Company has a $4,934,731 commercial mortgage with a bank. The mortgage note
requires monthly payments of $36,500 of principal and interest until June 1,
2007, when they adjust under the terms of the note, and a final payment for the
unpaid principal amount estimated to be around $2.8 million due November 1,
2012. Interest is at 5.69% through June 1, 2007.

The following table summarizes the cash payments under the Companys
contractual term debt and lease obligations at September 30, 2004 and the effect
such obligations are expected to have on its liquidity and cash flows in future
periods (amounts in thousands). The table does not include a revolving credit
facility which was repaid in January, 2005.

|                          | 2005 |  | 2006 |       | 2007 |   | 2008  |  | 2009 |     | After 2009 |   | Total
|------------------------- | ---- |  | ---- | ----- | ---- | - | ----- |  | ---- | --- | ---------- | - | -----
|                         
|Mortgage notes payable    |      |  | $    | 323   |      | $ | 342   |  | $    | 362 |            | $ | 1,993
|Subordinated debt*        |      |  |      | 460   |      |   | 362   |  |      | 362 |            |   | 4,464
|Capital lease obligations |      |  |      | 74    |      |   | 80    |  |      | --- |            |   | ---  
|Operating leases          |      |  |      | 563   |      |   | 518   |  |      | 60  |            |   | ---  
|                          |      |  |      |       |      |   |       |  |      |     |            |   |      
|                         
|                          |      |  | $    | 1,420 |      | $ | 1,302 |  | $    | 784 |            | $ | 6,457
|                          |      |  |      |       |      |   |       |  |      |     |            |   |      
|                          |      |  |      |       |      |   |      

*  Subordinated debt
includes notes to related parties.

The Companys line of credit is a revolver against which the Company
applies cash receipts, and draws cash as needed. The line of credit is committed
until January, 2008.

The Company expects to spend approximately $2.5 million in fiscal 2005 on
capital assets, including the ERP system, equipment for its recently completed
vivarium and laboratory equipment. As of September 30, 2004, approximately
$500,000 had been committed.

The covenants in the Companys credit agreement requiring the maintenance
of certain ratios of interest-bearing indebtedness (not including subordinated
debt) to EBITDA and net cash flow to debt servicing requirements may restrict
the amount the Company can borrow to fund future operations, acquisitions and
capital expenditures.

Based on its current business activities, the Company believes cash generated
from its operations and amounts available under its existing credit facilities,
combined with the proceeds from the sale of its Baltimore building, will be
sufficient to fund the Companys working capital and capital expenditure
requirements for the foreseeable future and through September 30,
2005.

Inflation

The Company believes that inflation has not had a material adverse effect on its
business, operations or financial condition.

Critical Accounting Policies

Managements Discussion and Analysis of Financial Condition and
Results of Operations and Liquidity and Capital Resources
discusses the consolidated financial statements of the Company, which have been
prepared in accordance with accounting principles generally accepted in the
United States. Preparation of these financial statements requires management to
make judgments and estimates that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosures of contingent assets and
liabilities. Certain significant accounting policies applied in the preparation
of the financial statements require management to make difficult, subjective or
complex judgments, and are considered critical accounting policies by the
Company. The Company has identified the following areas as critical accounting
policies.

21

Revenue Recognition

The majority of the Companys service contracts involve the processing of
bioanalytical samples for pharmaceutical companies. These contracts generally
provide for a fixed fee for each assay method developed or sample processed and
revenue is recognized under the specific performance method of accounting. Under
the specific performance method, revenue and related direct costs are recognized
when services are performed. The Companys other service contracts
generally consist of preclinical and clinical trial studies for pharmaceutical
companies. Service revenue is recognized based on the ratio of direct costs
incurred to total estimated direct costs under the proportional performance
method of accounting. Losses on contracts are provided in the period in which
the loss becomes determinable. Revisions in profit estimates are reflected on a
cumulative basis in the period in which such revisions become known. The
establishment of contract prices and total contract costs involves estimates
made by the Company at the inception of the contract period. These estimates
could change during the term of the contract which could impact the revenue and
costs reported in the consolidated financial statements. Projected losses on
contracts are provided for in their entirety when known. Revisions to estimates
have not been material to the Company. Service contract fees received upon
acceptance are deferred and classified within customer advances, until earned.
Unbilled revenues represent revenues earned under contracts in advance of
billings.

The Companys product revenue is derived primarily from sales of equipment
utilized for scientific research. Revenue from equipment not requiring
installation, testing or training is recognized upon shipment to customers. One
Company product includes internally developed software and requires
installation, testing and training, which occur concurrently. Revenue is
recognized upon completion of the installation, testing and training.

Impairment of Long-Lived Assets, Including Goodwill

Long-lived assets, such as property and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be separately presented
in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated. The assets and
liabilities of a disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the balance
sheet.
Goodwill and other indefinite lived intangible assets, collectively referred to
as indefinite lived useful assets, are tested annually for
impairment, and are tested for impairment more frequently if events and
circumstances indicate that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount exceeds the assets fair
value. This determination is made at the reporting unit level and consists of
two steps. First, the Company determines the fair value of a reporting unit and
compares it to its carrying amount. Second, if the carrying amount of a
reporting unit exceeds its fair value, an impairment loss is recognized for any
excess of the carrying amount of the reporting units indefinite lived useful
assets over the implied fair value of those indefinite lived useful assets. The
implied fair value of the indefinite lived useful assets is determined by
allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation, in accordance with FASB Statement No. 141, Business
Combinations. The residual fair value after this allocation is the implied fair
value of the reporting units indefinite lived useful assets.

Of the $1,251,000 of intangible assets acquired from LCR, $180,000 was assigned
to methodologies, $359,000 to the customer relationships, and $712,000 to the
regulated facility/FDA compliant laboratory site. The Company estimated the
economic useful life of the acquired methodologies and customer relationships to
be 5 years with amortization recognized using the straight-line method. The
Company has determined that the acquired regulated facility/FDA compliant
laboratory site is an indefinite-lived intangible not subject to
amortization.

Of the $1,691,000 in value of the intangible assets acquired from PKLB, $575,000
in value was assigned to methodologies, $562,000 in value to subject
relationships, and $555,000 in value to the regulated facility/FDA compliant
laboratory site. The Company estimated the economic useful life of the acquired
methodologies and subject relationships to be 5 years with amortization
recognized using the straight-line method. The Company has determined that the
acquired regulated facility/FDA compliant laboratory site is an indefinite-lived
intangible not subject to amortization. The Companys estimate of fair
values and allocation of the purchase price was determined with the analysis and
assistance of an independent valuation firm

22

Income Tax Accounting

Income taxes are accounted for in accordance with SFAS No. 109, Accounting
for Income Taxes. SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities. These deferred taxes are measured by applying the provisions of tax
laws in effect at the balance sheet date.

The Company recognizes deferred tax assets in its balance sheet which typically
represent items deducted currently in the financial statements that will be
deducted in future periods in tax returns. In accordance with SFAS No. 109, a
valuation allowance is recorded against these deferred tax assets to reduce the
total deferred tax assets to an amount that will, more likely than not, be
realized in future periods. The valuation allowance is based, in part, on
managements estimate of future taxable income, the expected utilization of
tax loss carry forwards and the expiration dates of tax loss carry forwards.
Significant assumptions are used in developing the analysis of future taxable
income for purposes of determining the valuation allowance for deferred tax
assets which, in the opinion of management, are reasonable under the
circumstances.

The Company has an accumulated net deficit in its UK subsidiaries, consequently,
United States deferred tax liabilities on such earnings have not been
recorded.

New Accounting Pronouncements

In November, 2004 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) Number 151 dealing with
inventory costs. The statement clarifies what costs can be included in
inventory, requiring that absorption factors be based on normal capacities of
manufacturing facilities and excess capacity be expensed as incurred. The
Companys current costing methodology substantially conforms with the new
standard. The Company does not expect a material change in costing methods from
adoption of this statement.

In December, SFAS 123 (Revised) was issued dealing with Share-Based Payments. In
general, this statement requires that companies compute the fair value of
options and other stock based employee incentives, and charge this value to
operations over the period earned, generally the vesting period. The only
instruments we use that are governed by this statement are stock options for
Directors and employees. The impact on reported results of adoption of this
statement, required for interim and annual periods after June 15, 2005, is
presented in note 1 (k) to the Consolidated Financial Statements. The impact on
operations in future periods will be determined by amortizing the remaining
value of our currently outstanding options, plus the value imputed to future
option grants using those methods. There is no impact on cash flow.

In December, 2003 SFAS Number 132 was revised regarding employers
disclosures about pensions and other postretirement benefits. We do not have any
plans addressed by this revision.

Item 7A.    Quantitative and Qualitative Disclosures
about Market Risk.

The Companys primary market risk exposure with regard to financial
instruments is the changes in interest rates. The Credit Agreement between the
Company and The Provident Bank dated October 29, 2002 bears interest at a rate
of either the banks prime rate plus 0 to 125 basis points, or at LIBOR
plus 200 to 350 basis points, depending in each case upon the ratio of the
Companys interest-bearing indebtedness (less subordinated debt) to EBITDA,
at the Companys option. Historically, the Company has not used derivative
financial instruments to manage exposure to interest rate changes. The Company
estimates that a hypothetical 10% adverse change in interest rates would not
materially affect the consolidated operating results of the Company. While the
Companys revolving line of credit is at variable rates, the Company
elected in June, 2004, to fix its floating rate real estate mortgages at 5.69%
interest for a three-year period.

23

The Company operates internationally and is, therefore, subject to potentially
adverse movements in foreign currency rates change. The effect of movements in
the exchange rates was not material to the consolidated operating results of the
Company in fiscal years 2004, 2003 and 2002. The Company estimates that a
hypothetical 10% adverse change in foreign currency exchange rates would not
materially affect the consolidated operating results of the Company.

24

Item 8.    Financial Statements and Supplementary
Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Bioanalytical Systems, Inc.:

We have audited the accompanying consolidated balance sheet of Bioanalytical
Systems, Inc. and Subsidiaries as of September 30, 2004, and the related
consolidated statements of operations, shareholders equity and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides 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 Bioanalytical
Systems, Inc. and Subsidiaries as of September 30, 2004, and the results of
their operations and their cash flows for the year then ended, in conformity
with U.S. generally accepted accounting principles.

/s/  KPMG LLP
Indianapolis, Indiana
January 7, 2005

25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Bioanalytical Systems, Inc.:

We have audited the accompanying consolidated balance sheet of Bioanalytical
Systems, Inc. as of September 30, 2003, and the related consolidated statements
of operations, shareholders equity, and cash flows for each of the two years
in the period ended September 30, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bioanalytical
Systems, Inc. at September 30, 2003, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
September 30, 2003 in conformity with U.S. generally accepted accounting
principles.

As discussed in note 1 to the consolidated financial statements, effective
October 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.

/s/  Ernst & Young, LLP
November 28, 2003

26

BIOANALYTICAL SYSTEMS INC.
Consolidated Balance Sheets
At September 30,

|Assets                                                | 2004 |  | 2003
|----------------------------------------------------- | ---- |  | ----
|                                                     
|Current assets:                                       |      |  |     
|                                                     
|Cash and cash equivalents                             |      |  | $   
|Accounts receivable:                                  |      | 
|Trade                                                 |      |  |     
|Grants                                                |      |  |     
|Unbilled revenues and other                           |      |  |     
|Inventories                                           |      |  |     
|Deferred income taxes                                 |      |  |     
|Refundable income taxes                               |      |  |     
|Prepaid expenses                                      |      |  |     
|                                                      |      |  |     
|Total current assets                                  |      |  |     
|                                                      |      |  |     
|                                                     
|Property and equipment:                               |      | 
|Land and improvements                                 |      |  |     
|Buildings and improvements                            |      |  |     
|Machinery and equipment                               |      |  |     
|Office furniture and fixtures                         |      |  |     
|Construction in process                               |      |  |     
|                                                      |      |  |     
|                                                      |      |  |     
|                                                     
|Less accumulated depreciation and amortization        |      |  |     
|                                                      |      |  |     
|                                                      |      |  |     
|                                                     
|Goodwill                                              |      |  |     
|                                                     
|Intangible assets, net of accumulated amortization of |      | 
|$451,363 in 2004 and $116,253 in 2003                 |      |  |     
|Debt issue costs, net                                 |      |  |     
|Other assets                                          |      |  |     
|                                                      |      |  |     
|Total assets                                          |      |  | $   
|                                                      |      |  |     

See accompanying notes to
consolidated financial statements.

27

BIOANALYTICAL SYSTEMS INC.
Consolidated Balance Sheets
At September 30,

|Liabilities and Shareholders' Equity                                  | 2004 |  | 2003
|--------------------------------------------------------------------- | ---- |  | ----
|                                                                     
|Current liabilities:                                                  |      |  |     
|                                                                     
|Accounts payable                                                      |      |  | $   
|Accrued expenses                                                      |      |  |     
|Customer advances                                                     |      |  |     
|Revolving line of credit                                              |      |  |     
|Current portion of capital lease obligations                          |      |  |     
|Current portion of long-term debt, including                          |      | 
|$218,670 in 2004 and $509,670 in 2003 to                              |      | 
|related parties                                                       |      |  |     
|                                                                      |      |  |     
|Total current liabilities                                             |      |  |     
|                                                                     
|Capital lease obligations, less current portion                       |      |  |     
|Long-term debt, less current portion                                  |      |  |     
|Construction line of credit                                           |      |  |     
|Subordinated notes payable, including $735,989 in                     |      |  |     
|2004 and $854,660 in 2003 to related parties, less                    |      | 
|current portion                                                       |      |  |     
|Deferred income taxes                                                 |      |  |     
|                                                                     
|Shareholders' equity:                                                 |      | 
|Preferred shares:                                                     |      | 
|Authorized  1,000,000 shares; none issued             and outstanding |      |  |     
|Common shares, no par value:                                          |      | 
|Authorized 19,000,000 shares; issued and                              |      |  |     
|outstanding 4,869,502 shares in 2004 and                              |      | 
|4,831,460 shares in 2003                                              |      |  |     
|Additional paid-in-capital                                            |      |  |     
|Retained earnings                                                     |      |  |     
|Accumulated other comprehensive loss                                  |      |  |     
|                                                                      |      |  |     
|Total shareholders' equity                                            |      |  |     
|                                                                      |      |  |     
|Total liabilities and shareholders' equity                            |      |  | $   
|                                                                      |      |  |     
|See accompanying notes to consolidated financial statements           |      | 

28

BIOANALYTICAL SYSTEMS INC.
Consolidated Statements of Operations
Years ended September 30,

|                                              | 2004 |  | 2003 |            | 2002
|--------------------------------------------- | ---- |  | ---- | ---------- | ----
|Service revenue                               |      |  | $    | 24,928,305 |     
|Product revenue                               |      |  |      | 12,224,155 |     
|                                              |      |  |      |            |     
|Total revenue                                 |      |  |      | 37,152,460 |     
|                                              |      |  |      |            |     
|Cost of service revenue                       |      |  |      | 21,347,731 |     
|Cost of product revenue                       |      |  |      | 4,270,720  |     
|                                              |      |  |      |            |     
|Total cost of revenue                         |      |  |      | 25,618,451 |     
|                                              |      |  |      |            |     
|                                             
|Gross profit                                  |      |  |      | 11,534,009 |     
|                                              |      |  |      |            |     
|                                             
|Operating expenses:                           |      | 
|Selling                                       |      |  |      | 2,703,450  |     
|Research and development                      |      |  |      | 1,099,533  |     
|General and administrative                    |      |  |      | 7,476,646  |     
|(Gain) loss on sale of property and equipment |      |  |      | 28,757     |     
|                                              |      |  |      |            |     
|Total operating expenses                      |      |  |      | 11,308,386 |     
|                                              |      |  |      |            |     
|                                             
|Operating income                              |      |  |      | 254,380    |     
|Interest income                               |      |  |      | 7,621      |     
|Interest expense                              |      |  |      | (942,463   | )   
|Other income                                  |      |  |      | 102,557    |     
|                                              |      |  |      |            |     
|Income (loss) before income taxes             |      |  |      | (606,662   | )   
|Income taxes                                  |      |  |      | (403,308   | )   
|                                              |      |  |      |            |     
|Net income (loss)                             |      |  | $    | (203,354   | )   
|                                              |      |  |      |            |     
|                                             
|Net income (loss) per share:                  |      | 
|Basic                                         |      |  | $    | (0.04      | )   
|Diluted                                       |      |  | $    | (0.04      | )   
|Weighted average common shares outstanding:   |      | 
|Basic                                         |      |  |      | 4,860,095  |     
|Diluted                                       |      |  |      | 4,860,095  |     

See accompanying notes to consolidated financial statements.

29

BIOANALYTICAL SYSTEMS INC.
Consolidated Statements of Shareholders' Equity
Years ended September 30, 2004, 2003, and 2002

|                                                 | Common Shares
Number          Amount |  | Additional
paid in
capital |           | Retained
earnings |   | Accumulated other
comprehensive
loss |  | Total
Shareholders'
equity
|------------------------------------------------ | ------------------------------------ |  | -------------------------- | --------- | ----------------- | - | ------------------------------------ |  | --------------------------
|Balance at September 30, 2001                    |                                      |  |                            | 4,569,416 |                   | $ | 1,012,190                            |  | $                         
|                                                
|Comprehensive income (loss):                     |                                      | 
|Net income                                       |                                      |  |                            | --        |                   |   | ---                                  |  |                           
|Other comprehensive loss:                        |                                      | 
|Foreign currency translation         adjustments |                                      |  |                            | ---       |                   |   | ---                                  |  |                           
|                                                 |                                      |  |                            |           |                   |   |                                     
|Total comprehensive income                       |                                      |  |                            |           |                   |   |                                      |  | 1,051,380                 
|Exercise of stock options                        |                                      |  |                            | 9,100     |                   |   | 2,016                                |  |                           
|Balance at September 30, 2002                    |                                      |  |                            | 4,578,516 |                   |   | 1,014,206                            |  |                           
|                                                 |                                      |  |                            |           |                   |   |                                      |  |                           
|                                                
|Comprehensive income:                            |                                      | 
|Net income                                       |                                      |  |                            | ---       |                   |   | ---                                  |  |                           
|Other comprehensive loss:                        |                                      | 
|Foreign currency translation         adjustments |                                      |  |                            | ---       |                   |   | ---                                  |  |                           
|                                                 |                                      |  |                            |           |                   |   |                                     
|Total comprehensive income                       |                                      |  |                            |           |                   |   |                                      |  | 73,187                    
|Shares issued for acquisitions                   |                                      |  |                            | 228,857   |                   |   | 148,621                              |  |                           
|Exercise of stock options                        |                                      |  |                            | 24,087    |                   |   | 5,336                                |  |                           
|                                                 |                                      |  |                            |           |                   |   |                                      |  |                           
|Balance at September 30, 2003                    |                                      |  |                            | 4,831,460 |                   |   | 1,168,163                            |  |                           
|                                                 |                                      |  |                            |           |                   |   |                                      |  |                           
|                                                
|Comprehensive income (loss):                     |                                      | 
|Net loss                                         |                                      |  |                            | ---       |                   |   | ---                                  |  |                           
|Other comprehensive loss:                        |                                      | 
|Foreign currency translation         adjustments |                                      |  |                            | ---       |                   |   | ---                                  |  |                           
|                                                 |                                      |  |                            |           |                   |   |                                     
|Total comprehensive loss                         |                                      |  |                            |           |                   |   |                                      |  |                           
|Conversion of note                               |                                      |  |                            | 38,042    |                   |   | 8,427                                |  |                           
|                                                 |                                      |  |                            |           |                   |   |                                      |  |                           
|Balance at September 30, 2004                    |                                      |  |                            | 4,869,502 |                   | $ | 1,176,590                            |  | $                         
|                                                 |                                      |  |                            |           |                   |   |                                      |  |                           

See accompanying notes to consolidated financial statements.

30

BIOANALYTICAL SYSTEMS INC.
Consolidated Statements of Cash Flows
Years ended September 30,

|                                                            | 2004 |  | 2003 |             | 2002
|----------------------------------------------------------- | ---- |  | ---- | ----------- | ----
|Operating activities:                                       |      |  |      |             |     
|                                                           
|Net income (loss)                                           |      |  | $    | (203,354    | )   
|Adjustments to reconcile net income (loss) to net cash      |      | 
|provided by operating activities:                           |      | 
|Depreciation and amortization                               |      |  |      | 3,441,127   |     
|(Gain) loss on sale of property and equipment               |      |  |      | 28,757      |     
|Deferred income taxes                                       |      |  |      | 12,927      |     
|Changes in operating assets and liabilities:                |      | 
|Accounts receivable                                         |      |  |      | (1,492,620  | )   
|Inventories                                                 |      |  |      | 485,612     |     
|Prepaid expenses and other assets                           |      |  |      | (113,471    | )   
|Accounts payable                                            |      |  |      | (310,906    | )   
|Refundable income taxes                                     |      |  |      | (518,763    | )   
|Income taxes payable                                        |      |  |      | --          |     
|Accrued expenses                                            |      |  |      | 344,894     |     
|Customer advances                                           |      |  |      | 1,159,308   |     
|                                                            |      |  |      |             |     
|Net cash provided by operating activities                   |      |  |      | 2,833,511   |     
|                                                            |      |  |      |             |     
|                                                           
|Investing activities:                                       |      | 
|Capital expenditures                                        |      |  |      | (3,568,045  | )   
|Proceeds from sale of property and equipment                |      |  |      | 79,010      |     
|Loans to PharmaKinetics Laboratories, Inc.                  |      |  |      | ---         |     
|Deferred acquisition costs for PharmaKinetics               |      |  |      | ---         |     
|Laboratories, Inc.                                          |      |  |      | ---         |     
|Payments for purchase of PharmaKinetics                     |      | 
|Laboratories, Inc., net of cash acquired                    |      |  |      | ---         |     
|Payments for purchase of LC Resources, Inc.,                |      | 
|net of cash acquired                                        |      |  |      | (8,118      | )   
|                                                            |      |  |      |             |     
|Net cash used by investing activities                       |      |  |      | (3,497,153  | )   
|                                                            |      |  |      |             |     
|                                                           
|Financing activities:                                       |      | 
|Borrowings of long-term debt                                |      |  |      | ---         |     
|Payments of long-term debt                                  |      |  |      | (504,749    | )   
|Borrowings on line of credit                                |      |  |      | 13,465,370  |     
|Payments on line of credit                                  |      |  |      | (13,027,555 | )   
|Borrowings on construction line of credit                   |      |  |      | 574,247     |     
|Payments on capital lease obligations                       |      |  |      | (196,166    | )   
|Payments of debt issue costs                                |      |  |      | ---         |     
|Payments on subordinated notes                              |      |  |      | ---         |     
|Net proceeds from the exercise of stock options             |      |  |      | ---         |     
|                                                            |      |  |      |             |     
|Net cash provided by financing activities                   |      |  |      | 311,147     |     
|                                                            |      |  |      |             |     
|Effect of exchange rate changes                             |      |  |      | (252,927    | )   
|                                                            |      |  |      |             |     
|Net increase (decrease) in cash and                         |      | 
|cash equivalents                                            |      |  |      | (605,422    | )   
|Cash and cash equivalents at beginning of year              |      |  |      | 1,378,311   |     
|                                                            |      |  |      |             |     
|Cash and cash equivalents at end of year                    |      |  | $    | 772,889     |     
|                                                            |      |  |      |             |     
|                                                           
|See accompanying notes to consolidated financial statements |      | 

31

(1)        Significant
Accounting Policies

(a)        Nature
of Business

| | Bioanalytical Systems, Inc. and its subsidiaries (We, the
Company or BASi) engage in research services and other
services related to pharmaceutical development. We also manufacture scientific
instruments for medical research, which we sell with related software for use in
industrial, governmental and academic laboratories. We conduct our businesses
through our research facilities in Indiana, Oregon, Maryland and the United
Kingdom and our manufacturing facility in Indiana. Our customers are located
throughout the world.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)        Principles
of Consolidation

| | The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(c)        Revenue
Recognition

| | The majority of our service contracts involve the development of analytical
methods and the processing of bioanalytical samples for pharmaceutical
companies. These contracts generally provide for a fixed fee for each sample
processed, and revenue is recognized under the specific performance method of
accounting. Under the specific performance method, revenue and related direct
costs are recognized when services are performed. Our other service contracts
generally consist of preclinical and clinical trial studies for pharmaceutical
companies. We recognize service revenue on these contracts based on the ratio of
direct costs incurred to total estimated direct costs under the proportional
performance method of accounting. When we revise profit estimates, we adjust on
a cumulative basis in the period in which the revisions become known. The
establishment of contract prices and total contract costs involves estimates
made by us at the inception of the contract period. These estimates could change
during the term of the contract, which impacts the revenue and costs we report
in the consolidated financial statements. We provide for projected losses on
contracts in their entirety when the loss becomes
determinable.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We generally bill a portion of service contract fees upon acceptance by our
customers. These are classified as customer advances until earned. Unbilled
revenues represent revenues earned under contracts in advance of
billings.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Our product revenue is derived primarily from sales of instruments utilized for
scientific research. Revenue from products not requiring installation, testing,
or training is recognized upon shipment to customers. One of our products
includes internally developed software and sometimes requires installation,
testing, and training, which occur concurrently. Revenue is recognized upon
completion of the installation, testing, and training.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(d)        Cash
Equivalents

| | We consider all highly liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.
| | ----------------------------------------------------------------------------------------------------------------------------------

(e)        Financial
Instruments

| | Our credit risk consists principally of trade accounts receivable. We perform
periodic credit evaluations of our customers financial conditions and
generally do not require collateral on trade accounts receivable. We do not
anticipate any significant losses and, accordingly, we have recorded trade
receivables in the accompanying balance sheet at their outstanding unpaid
balances. Historically, we have not experienced significant
losses.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32

| | Our cash and cash equivalents, accounts receivable, accounts payable and certain
other accrued liabilities are all short-term in nature and their carrying
amounts approximate fair value. We have both variable rate borrowings, which
adjust to the current market, and borrowings with fixed rates for up to three
years. The carrying value of our fixed rate debt also approximates its fair
value.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(f)        Inventories

| | We state our inventories at the lower of cost or market, using the last-in,
first-out (LIFO) method.
| | ----------------------------------------------------------------------------------------------------

(g)        Impairment
of Long-Lived Assets

| | Long-lived assets, such as property and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be separately presented
in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated. The assets and
liabilities of a disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the balance
sheet.
Goodwill and other indefinite lived intangible assets, collectively referred to
as indefinite lived useful assets, are tested annually for impairment, and are
tested for impairment more frequently if events and circumstances indicate that
the asset might be impaired. An impairment loss is recognized to the extent that
the carrying amount exceeds the assets fair value. This determination is made
at the reporting unit level and consists of two steps. First, the Company
determines the fair value of a reporting unit and compares it to its carrying
amount. Second, if the carrying amount of a reporting unit exceeds its fair
value, an impairment loss is recognized for any excess of the carrying amount of
the reporting units indefinite lived useful assets over the implied fair value
of those indefinite lived useful assets. The implied fair value of the
indefinite lived useful assets is determined by allocating the fair value of the
reporting unit in a manner similar to a purchase price allocation, in accordance
with FASB Statement No. 141, Business Combinations. The residual fair value
after this allocation is the implied fair value of the reporting units
indefinite lived useful assets.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(h)        
Property and Equipment

| | We record property and equipment at cost, including interest capitalized during
the period of construction of major facilities. We compute depreciation,
including amortization on capital leases, using the straight-line method over
the estimated useful lives of the assets, which we estimate to be: buildings and
improvements, 34 years; machinery and equipment, 5 to 10 years, and office
furniture and fixtures, 10 years. Expenditures for maintenance and repairs are
expensed as incurred.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(i)        Goodwill
and Intangible Assets

| | We carry goodwill at cost. Prior to October 1, 2002, we amortized goodwill on a
straight-line basis ranging from 15 to 20 years. Other intangible assets are
stated at cost and are amortized on a straight-line basis over five years. In
June 2001, the Financial Accounting Standards Board (FASB) changed
the accounting and reporting requirements for goodwill and other intangible
assets. All intangible assets acquired that are obtained through contractual or
legal right, or are capable of being separately sold, transferred, licensed,
rented, or exchanged, must be recognized as an asset apart from goodwill.
Goodwill and intangibles with indefinite lives are no longer amortized, but are
subject to an annual assessment for impairment by applying a fair value based
test.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We applied these provisions beginning on October 1, 2002. We complete a
fair-value based impairment test on our goodwill and intangible assets not
subject to amortization at the close of each fiscal year, in addition to other
times if events indicate there is a likely decline in value. The carrying amount
of goodwill is as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                  | 
|----------------------------------------------------------------- | 
|Goodwill at September 30, 2003                                    | 
|Additions resulting from adjustments to prior year's acquisitions | 
|                                                                  | 
|Goodwill at September 30, 2004                                    | 
|                                                                  | 

33

| | The components of intangible assets subject to amortization are as
follows:
| | ---------------------------------------------------------------------------

|                       | September 30, 2004
|---------------------- | ------------------
|
|Methodologies          |                   
|Volunteer database     |                   
|Customer relationships |                   
|                       |                   
|                       |                   
|                       |                   

|                       |  | September 30, 2003
|---------------------- |  | ------------------
|
|Methodologies          |  |                   
|Customer relationships |  |                   
|                       |  |                   
|                       |  |                   
|                       |  |                   

| | The Company has indefinite-lived intangible assets of $1,266,811 and $1,647,025
assigned to the acquired regulated facilities/Food and Drug Administration (FDA)
compliant research sites as of September 30, 2004 and 2003,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amortization expense for intangible assets during the fiscal years ended
September 30, 2004 and 2003 was $335,111 and $116,253, respectively. The
following table provides information regarding estimated amortization expense
for each of the following years ended September 30:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     | 
|---- | 
|
|2005 | 
|2006 | 
|2007 | 
|2008 | 
|     | 
|     | 
|     | 

34

| | The following table adjusts earnings and earnings per share for the adoption of
SFAS 142:
| | -----------------------------------------------------------------------------------------

|                                     | Year ended September 30
|------------------------------------ | -----------------------
|
|Reported net income/(loss)           |                        
|Goodwill amortization                |                        
|                                     |                        
|Adjusted net income/(loss)           |                        
|                                     |                        
|Basic net income/(loss) per share:   |                        
|As reported                          |                        
|Add goodwill amortization            |                        
|                                     |                        
|Adjusted net income/(loss)           |                        
|per share                            |                        
|                                     |                        
|Diluted net income/(loss) per share: |                        
|As reported                          |                        
|Add goodwill amortization            |                        
|                                     |                        
|Adjusted net income/(loss)           |                        
|per share                            |                        
|                                     |                        
|                                     |                        

(j)        Advertising
Expense

| | We expense advertising costs as incurred. Advertising expense was $270,780,
$237,337, and $266,225 for the years ended September 30, 2004, 2003, and 2002,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(k)        Stock-Based
Compensation

| | We use the intrinsic value method to account for stock options. Our option
grants to employees and directors are always at or above the market price at the
date of grant; therefore, we do not have a charge against
operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Below is pro forma information of the potential effect on net income/(loss) and
earnings/(loss) per share had we expensed stock options using the fair value
method. We estimated the fair value for options we granted using a binomial
option pricing model with the following weighted average
assumptions:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                 | 2004  | 2003  | 2002 
|-------------------------------------------------------------------------------- | ----- | ----- | -----
|Risk-free interest rate                                                          | 3.50% | 5.50% | 5.50%
|Dividend yield                                                                   | 0.00% | 0.00% | 0.00%
|Volatility factor of the expected market     price of the Companys common stock | 0.724 | 0.14  | 0.53 
|Expected life of the options (years)                                             | 7.0   | 7.0   | 7.0  

35

| | For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the related vesting period. The Companys pro
forma information giving effect to the estimated compensation expense related to
stock options is as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | 2004 |  | 2003 |          | 2002
|------------------------------------- | ---- |  | ---- | -------- | ----
|Net income (loss) as reported         |      |  | $    | (203,354 | )   
|Deduct:  Total stock-based employee   |      | 
|compensation expense determined       |      | 
|under the fair value-based method for |      | 
|all awards, net of tax effects        |      |  |      | (43,911  | )   
|                                      |      |  |      |          |     
|Pro forma net income (loss)           |      |  | $    | (247,265 | )   
|                                      |      |  |      |          |     
|Pro forma net income (loss) per share |      |  |      | (0.05    | )   
|                                      |      |  |      |          |     

(l)        New
Accounting Pronouncements

| | In November, 2004 the FASB issued Statement of Financial Accounting Standards
(SFAS) Number 151 dealing with inventory costs. The statement
clarifies what costs can be included in inventory, requiring that absorption
factors be based on normal capacities of manufacturing facilities and excess
capacity be expensed as incurred. Our current costing methodology substantially
conforms with the new standard; therefore, we do not expect a material change in
our costing methods from adoption of this statement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December, SFAS 123 (Revised) was issued dealing with Share-Based Payments. In
general, this statement requires that companies compute the fair value of
options and other stock-based employee incentives, and charge this value to
operations over the period earned, generally the vesting period. The only
instruments we use that are governed by this statement are stock options for
Directors and employees. The impact on reported results of adoption of this
statement, required for interim and annual periods after June 15, 2005, is
presented in (k) above. The impact on operations in future periods will be
determined by amortizing the remaining value of our currently outstanding
options, plus the value imputed to future option grants using the above
described methods. There is no impact on cash flow.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December, 2003 SFAS Number 132 was revised regarding employers
disclosures about pensions and other postretirement benefits. We do not have any
plans addressed by this revision.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(m)        Use
of Estimates

| | The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Our actual results could differ from those
estimates.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(2)        Earnings per
Share

| | We compute basic earnings per share on the basis of the weighted average number
of common shares outstanding. We compute diluted earnings per share on the basis
of the weighted average number of common and potential common shares
outstanding. Potential common shares include the dilutive effect of employee and
director options to purchase common shares and convertible subordinated debt,
which is assumed to be converted. The convertible subordinated debt was not
dilutive in any period presented.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

| | The following table reconciles the basic earnings per share computation to the
diluted earnings per share computation from continuing operations as of
September 30:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | 2004 |  | 2003 |           | 2002
|----------------------------------- | ---- |  | ---- | --------- | ----
|Shares:                             |      |  |      |           |     
|Basic shares                        |      |  |      | 4,860,095 |     
|Effect of dilutive securities:      |      | 
|Options                             |      |  |      | ---       |     
|Convertible subordinated debt       |      |  |      | ---       |     
|                                    |      |  |      |           |     
|Diluted shares                      |      |  |      | 4,860,095 |     
|                                    |      |  |      |           |     
|Basic and diluted net income (loss) |      |  | $    | (203,354  | )   
|Basic EPS                           |      |  | $    | (0.04     | )   
|Diluted EPS                         |      |  | $    | (0.04     | )   

(3)        Acquisitions

| | We acquired two laboratory services companies during the year ended September 30, 2003. We used
the purchase method of accounting for each of these acquisitions. The purchase
price has been allocated to the estimated fair values of net assets acquired.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)        LC
Resources, Inc.

| | On December 13, 2002 we acquired LC Resources, Inc. (LCR), now BASi
Northwest Laboratories, Inc., purchasing all of the outstanding shares of LCR
for $1,999,000. The purchase price consisted of cash payments of $199,000 and
issuance of $1,800,000 in 10% subordinated notes payable. We engaged an
independent valuation firm to determine the fair value of identifiable
intangible assets. The following table summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       | 
|---------------------- | 
|Current assets         | 
|Property and equipment | 
|Intangible assets      | 
|Goodwill               | 
|                       | 
|Total assets acquired  | 
|                      
|Liabilities assumed    | 
|                       | 
|Net assets acquired    | 
|                       | 

| | As of December 31, 2003 we recorded a deferred tax liability in the amount of
$518,000 with a corresponding increase in goodwill. The intangible assets
arising from this transaction include $180,000 assigned to methodologies,
$359,000 assigned to customer relationships and $712,000 assigned to the
regulated facility/FDA compliant research site. We estimated the economic useful
lives of the acquired methodologies and customer relationships to be 5 years,
using straight-line amortization, and determined that the acquired regulated
facility/FDA compliant laboratory site is an indefinite-lived intangible asset
not subject to amortization. The recorded goodwill is not expectd to be
deductible for tax purposes.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)        PharmaKinetics
Laboratories, Inc.

| | On May 26, 2003, we converted our $791,000 of convertible notes of
PharmaKinetics Laboratories, Inc. (PKLB) into 4,992,300 shares of
PKLB common stock, representing a 67% ownership interest in PKLB. On June 30,
2003, we purchased the remaining common stock and all preferred stock of PKLB
through the exchange of 228,857 shares of the Companys common stock valued
at $1,178,614 and the issuance of $3,999,840 of 6% convertible notes due 2008.
These notes plus any accrued interest are convertible into shares of the
Companys common stock at the holders option any time after June 1,
2004 at the conversion rate of sixteen dollars per share of our common stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37

| | The Company paid cash aggregating $1,646,501 representing cash advances and acquisition costs made to PKLB from June 2002 through May 2003. PKLB was a publicly
traded company based in Baltimore, Maryland, that provided clinical research and
development services to the pharmaceutical and biotechnology industries in the
development of prescription and non-prescription drug products. PKLB has been
renamed BASi Maryland, Inc.
The purchase price has been allocated based on the estimated fair values of the
assets and liabilities acquired. The purchase price has been allocated as
follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                       | 
|---------------------- | 
|Current assets         | 
|Property and equipment | 
|Intangible assets      | 
|                       | 
|Total assets acquired  | 
|                      
|Liabilities assumed    | 
|                       | 
|Net assets acquired    | 
|                       | 

| | During the quarter ended September 30, 2004, we received a revised final valuation
report and adjusted the amounts reported as the final purchase price allocation
in our report on Form 10-Q from our independent valuation firm the quarter ended June 30, 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the year ended September 30, 2004, we recorded additional adjustments
from our original estimates to reduce deferred revenue at the acquisition date
by $189,450, record taxes on the revaluation of the basis of property of $85,877
and record acquisition costs of $54,739. Of the $1,691,365 in value of the
acquired intangible assets, $574,561 was assigned to methodologies, $561,993 was
assigned to volunteer database and $554,811 has been assigned to the regulated
facility/FDA compliant research site. We estimated the economic useful lives of
the acquired methodologies and volunteer database to be 5 years, using
straight-line amortization, and determined that the acquired regulated
facility/FDA research laboratory site is an indefinite-lived intangible asset
not subject to amortization.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Unaudited Pro Forma
Results

| | We have included the results of LCR's and PKLB's operations in the consolidated
financial statements since the acquisition dates of December 13, 2002, and May
26, 2003, respectively. Both of the acquired companies are included in the
research services segments. Unaudited pro forma results of operations, presented
as if the business combinations had occurred at the beginning of fiscal 2002,
after giving effect to certain adjustments resulting from the 2003 acquisitions
were as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | Year ended September 30
|------------------------------------- | -----------------------
|
|(In thousands, except per
share data)
|                                     
|Revenue                               |                        
|Net income (loss)                     |                        
|                                     
|Earnings (loss) per share:            |                        
|Basic and diluted                     |                        

38

(4)        Subsequent
Event

| | In connection with the purchase of PKLB, we acquired land and a building valued
at approximately $6.2 million, which approximates fair value. These assets are
presented in the consolidated balance sheet in land and building. On January 5,
2005 we sold the building for a $6.5 million cash selling price, with a three
year leaseback of approximately 85% of the space in the building for $800,000
annually, plus operating expenses, which approximates market rental. We will
account for the transaction as a sale/leaseback transaction. The net cash
received in the transaction, after expenses, approximated the carrying value of
the building. The net proceeds of the sale were used to pay off our revolving
credit facility and for working capital.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(5)         Inventories

| | Inventories at September 30 consisted of the following:
| | -------------------------------------------------------

|                  | 2004 |  | 2003
|----------------- | ---- |  | ----
|Raw materials     |      |  | $   
|Work in progress  |      |  |     
|Finished goods    |      |  |     
|                  |      |  |     
|                  |      |  |     
|                 
|Less LIFO reserve |      |  |     
|                  |      |  |     
|                  |      |  | $   
|                  |      |  |     

(6)        Lease
Arrangements

| | We sometimes use capital lease arrangements to finance the acquisition of
equipment. Future minimum lease payments, based upon scheduled payments under
lease arrangements, as of September 30, 2004, total $168,400, of which $14,295
represents interest. Remaining payments relating to principal are $73,981 and
$80,124 in fiscal 2005 and 2006, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The total amount of property and equipment capitalized under capital lease
obligations as of both September 30, 2004 and 2003 was $1,917,625. Accumulated
amortization on capital leases at September 30, 2004 and 2003 was $1,413,842 and
$1,227,596, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On November 15, 2002 the Company sold $1,087,976 of equipment, including
equipment under a capital lease, to a bank and is leasing the equipment back
under an operating lease.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | We lease office space and equipment under noncancelable operating leases that
terminate at various dates through 2007. Certain of these leases contain renewal
options. Total rental expense under these leases was $488,294, $591,580, and
$213,111 in fiscal 2004, 2003, and 2002, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Future minimum lease payments for the following fiscal years under operating
leases at September 30, 2004 are as follows:
| | -------------------------------------------------------------------------------------------------------------------------

|     | 
|---- | 
|2005 | 
|2006 | 
|2007 | 
|     | 
|     | 
|     | 

39

(7)        Debt
Arrangements

| | Long-term debt consisted of the following at September 30:
| | ----------------------------------------------------------

|                                                                      |  |             
|--------------------------------------------------------------------- |  | ------------
|Mortgage note payable to a bank, payable in monthly principal and     |  |             
|interest installments of $36,500 until June 1, 2007 when they         | 
|adjust under the terms of the note.  Interest is fixed at 5.69%       | 
|to June 1, 2007, when it adjusts based on market rates                |  | $  4,934,731
|                                                                     
|Mortgage note payable to a bank, payable in monthly principal and     | 
|interest installments of $18,241 until May 17, 2007 when they         | 
|adjust under the terms of the note.  Interest is fixed at 5.69%       | 
|to June 1, 2007, when it adjusts based on market rates                |  | 2,058,696   
|                                                                     
|Note payable to former director of PKLB and current director of the   | 
|Company refinanced in December 2003 (note 12). Payment of             | 
|interest only at 8% per annum until maturity in June 2005             | 
|Payable in a combination of common shares and cash at payee           | 
|election                                                              |  | 100,000     
|                                                                     
|Demand note payable to former officer of PKLB and current employee of | 
|the Company. Interest payable at 8% per annum (note 12)               |  | ---         
|                                                                     
|6% convertible subordinated notes payable due January 1, 2008         | 
|Interest payable in arrears on the 15th of January and July after     | 
|June 1, 2004 (4.67% effective rate)                                   |  | 3,999,840   
|                                                                     
|10% subordinated notes payable due October 1, 2007. Holders can       | 
|require the Company to repay 20% of the original outstanding          | 
|balance each October 1. Interest payable upon demand each October     | 
|1 through maturity                                                    |  | 1,548,270   
|                                                                     
|Mortgage note payable to a bank, payable in monthly principal and     | 
|interest installments of $15,755 until June 1, 2007, when they        | 
|adjust under the terms of the note. Interest is fixed at 5.69% to     | 
|June 1, 2007, when it adjusts based on market rates (a)               |  | 2,222,257   
|                                                                      |  |             
|                                                                      |  | 14,863,794  
|Less current portion                                                  |  | 782,748     
|                                                                      |  |             
|                                                                      |  | $14,081,046 
|                                                                      |  |             

| | (a)    Was a construction loan at September 30, 2003, with
no principal payments, which converted under its term into a mortgage in June,
2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------

40

| | The following table summarizes our principal payment obligations for the years
ending September 30:
| | ---------------------------------------------------------------------------------------------------

|           | 
|---------- | 
|2005       | 
|2006       | 
|2007       | 
|2008       | 
|2009       | 
|Thereafter | 
|           | 
|           | 
|           | 

| | Cash interest payments of $522,838, $599,317, and $250,615 were made in 2004,
2003, and 2002, respectively. Cash interest payments for 2004 and 2003 included
interest of $33,834 and $37,302, respectively, which was capitalized.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(a)        Senior
Debt

| | On October 29, 2002, we obtained new credit agreements with two different banks
that completely refinanced and replaced all outstanding bank debt arrangements
that were in place at September 30, 2002. Borrowings under these new credit
agreements are collateralized by substantially all assets related to the
Companys operations and all common stock of the Companys United
States subsidiaries and 65% of the common stock of its non-United States
subsidiaries, and the assignment of a life insurance policy on the
Companys Chairman and CEO. Under the terms of these credit agreements, the
Company has agreed to restrict advances to subsidiaries, limit additional
indebtedness and capital expenditures as well as to comply with certain
financial covenants outlined in the borrowing agreements. These credit
agreements contain cross-default provisions. Details of each debt issue are
discussed below.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Our revolving line of credit limits outstanding borrowings to the borrowing base
as defined in the agreement, to a maximum available amount of $6,000,000. As of
September 30, 2004, the outstanding balance on this line of credit was
$2,825,660. Under the computation of the borrowing base, we had $1,827,906 of
unused availability at that time. Interest accrues monthly on the outstanding
balance at the banks prime rate to prime rate plus 125 basis points or at
the Eurodollar rate plus 200 to 350 basis points, as elected by the Company,
depending upon certain financial ratios. As of September 30, 2004, interest was
5.75% based on prime of 4.25%. The Company pays a fee equal to 25 to 50 basis
points, depending on certain financial ratios, on the unused portion of the line
of credit.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On January 5, 2005, we amended and restated this facility for a three year term
with the successor to our lead bank, on substantially the same terms as
above.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On October 29, 2002, we obtained a $2,250,000 construction loan with a bank
which expires November 1, 2012. We converted this loan under its terms to a
mortgage on the completed facility on June 1, 2004.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In fiscal 2003, we paid consulting fees of $300,000 for assistance in arranging
the above transactions to Periculum Capital Company, LLC. A principal of
Periculum is a shareholder of the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The loan agreements contain covenants which require maintenance of certain
financial ratios, restrict the amount of unfunded capital additions, and place
restrictions on the payment of principal and interest on subordinated debt,
among other things. We were in compliance with our loan covenants at September
30, 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

41

(b)        Subordinated
Debt

| | In connection with the acquisition of LCR (note 3), we issued 10% subordinated
notes of $1,800,000. The Company made principal payments of $360,000 and
interest payments of $197,435 on October 1, 2004, which was included in current
portion of long-term debt at September 30, 2004. These notes are subordinated to
the Companys senior debt.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In connection with the acquisition of PKLB (note 3), we issued $3,999,840 of 6%
convertible notes payable, including $500,000 payable to a current director of
the Company, due January 1, 2008. These notes were non-interest bearing until
June 1, 2004. We are accruing interest expense over the term of these notes
using the effective interest rate method. After June 1, 2004 the holders of
these notes may convert all or part of the outstanding notes and accrued
interest into our common stock at a conversion rate of $16 per common share.
These notes are convertible into 249,990 shares of the Companys common
stock. The Company, at its option, may prepay all or any portion of the
outstanding notes plus accrued interest, with prior written notice to the
holders. As of September 30, 2004, we have not made any prepayment elections.
These notes are subordinated to the Companys senior
debt.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(8)        Income
Taxes

| | Significant components of our deferred tax liabilities and assets as of
September 30 are as follows:
| | ----------------------------------------------------------------------------------------------------

|                                              | 2004 |  | 2003
|--------------------------------------------- | ---- |  | ----
|Deferred tax liabilities:                     |      |  |     
|Tax over book depreciation                    |      |  | $   
|Lower tax basis on assets of acquired company |      |  |     
|Deferred DISC income                          |      |  |     
|                                              |      |  |     
|Total deferred liabilities                    |      |  |     
|                                              |      |  |     
|Deferred tax assets:                          |      | 
|Inventory pricing                             |      |  |     
|Accrued vacation                              |      |  |     
|Accrued expenses and other  net              |      |  |     
|Foreign net operating loss                    |      |  |     
|                                              |      |  |     
|Total deferred tax assets                     |      |  |     
|Valuation allowance for deferred tax assets   |      |  |     
|                                              |      |  |     
|Net deferred tax assets                       |      |  |     
|                                              |      |  |     
|Net deferred tax liabilities                  |      |  | $   
|                                              |      |  |     

42

| | Significant components of the provision (benefit) for income taxes are as
follows:
| | ----------------------------------------------------------------------------------

|               | 2004 |  | 2003 |          | 2002
|-------------- | ---- |  | ---- | -------- | ----
|Current:       |      |  |      |          |     
|Federal        |      |  | $    | (394,167 | )   
|State          |      |  |      | (28,747  | )   
|Foreign        |      |  |      | 6,679    |     
|               |      |  |      |          |     
|Total current  |      |  | $    | (416,235 | )   
|               |      |  |      |          |     
|Deferred:      |      | 
|Federal        |      |  | $    | (46,129  | )   
|State          |      |  |      | 59,056   |     
|               |      |  |      |          |     
|Total deferred |      |  |      | 12,927   |     
|               |      |  |      |          |     
|               |      |  | $    | (403,308 | )   
|               |      |  |      |          |     
|               |      |  |     

| | The effective income tax rate varied from the statutory federal income tax rate
as follows:
| | -------------------------------------------------------------------------------------------

|                                  | 2004 | 2003 | 2002
|--------------------------------- | ---- | ---- | ----
|Statutory federal income tax rate |      |      |     
|Increases (decreases):            |      |     
|Amortization of goodwill and      |      |     
|other nondeductible expenses      |      |      |     
|Tax benefit of foreign sales      |      |      |     
|State income taxes, net of        |      |     
|federal tax benefit               |      |      |     
|Research and development credit   |      |      |     
|Nontaxable foreign (gains) losses |      |      |     
|Other                             |      |      |     
|                                  |      |      |     
|                                  |      |      |     
|                                  |      |      |     

| | In fiscal 2004, 2003, and 2002, our foreign operations generated income (loss)
before income taxes of $528,556, $(415,977), and $621,699, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | Payments made in 2004, 2003, and 2002 for income taxes amounted to $113,000,
$351,589, and $400,600, respectively.
| | ------------------------------------------------------------------------------------------------------------------

| | The Company has foreign net operating loss carryforwards of $793,238 that have
an indefinite life under current UK tax law.
| | ---------------------------------------------------------------------------------------------------------------------------

(9)        Stock Option
Plans

| | The Company established an Employee Stock Option Plan whereby options to
purchase the Companys common shares at fair market value can be granted to
our employees. Options granted become exercisable in four equal installments
beginning two years after the date of grant. The plan terminates in fiscal 2008.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Company established an Outside Director Stock Option Plan whereby options to
purchase the Companys common shares at fair market value can be granted to
outside directors. Options granted become exercisable in four equal installments
beginning two years after the date of grant. The plan terminates in fiscal 2008.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43

| | A summary of our stock option activity and related information for the years
ended September 30 is as follows:
| | --------------------------------------------------------------------------------------------------------------

|                                | 2004 | 2003 | 2002
|------------------------------- | ---- | ---- | ----
|
|Outstanding  beginning of year |      |      |     
|Exercised                       |      |      |     
|Granted                         |      |      |     
|Terminated                      |      |      |     
|                                |      |      |     
|Outstanding  end of year       |      |      |     
|                                |      |      |     

| | In 2004, the Company granted 5,000 shares under the Outside Director Stock
Option Plan at an exercise price of $4.57 per share. These options become
exercisable in two equal installments at six months and one year from the grant
date. At September 30, 2004, there are 80,000 shares available for grants under
the two plans.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The  following  applies  to  options  outstanding  at  September 30,  2004:
| | ---------------------------------------------------------------------------

|Range of
exercise
prices | Number
outstanding at
September 30,
2004 | Weighted
average
remaining
contractual
life (years) | Weighted
average
exercise price | Number
exercisable at
September 30,
2004 | Weighted
average
exercise price
|------------------------ | ---------------------------------------- | --------------------------------------------------- | ------------------------------- | ---------------------------------------- | -------------------------------
|
|$2.80-4.58               |                                          | 320,500                                             |                                 |                                          | 8.54                           
|$        8.00            |                                          | 22,000                                              |                                 |                                          | 2.17                           

(10)        Retirement
Plan

| | The Company has an Internal Revenue Code Section 401(k) Retirement Plan
(the Plan) covering all employees over twenty-one years of age with at least one
year of service. Under the terms of the Plan, the Company contributes 2% of each
participants total wages to the Plan and matches 44% of the first 10% of
the employee contribution. The Plan also includes provisions for various
contributions which may be instituted at the discretion of the Board of
Directors. The contribution made by the participant may not exceed 30% of the
participants annual wages. The Company made no discretionary contributions
under the plan in 2004, 2003, and 2002. Contribution expense was $432,283,
$402,148, and $369,023 in fiscal 2004, 2003, and 2002, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(11)         Segment
Information

| | We operate in two principal segments  research services and research
products. Our services unit provides research and development support on a
contract basis directly to pharmaceutical companies. Our analytical products
unit provides liquid chromatography, electrochemical and physiological
monitoring products to pharmaceutical companies, universities, government
research centers, and medical research institutions. We evaluate performance and
allocate resources based on these segments. Certain of our assets are not
directly attributable to the service or product segments. These assets are
grouped into the Corporate segment and include cash and cash equivalents,
deferred income taxes, refundable income taxes, debt issue costs and certain
other assets. We do not allocate such items to the principal segments because
they are not used to evaluate their financial position. The accounting policies
of these segments are the same as those described in the summary of significant
accounting policies.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44

(a)        Operating
Segments

|                               | Year ended September 30
|------------------------------ | -----------------------
|
|(In thousands)                
|                              
|Revenue:                       |                        
|Service                        |                        
|Product                        |                        
|                               |                        
|Total                          |                        
|                               |                        
|Operating income:              |                        
|Service                        |                        
|Product                        |                        
|                               |                        
|Total operating income         |                        
|Corporate expenses             |                        
|                               |                        
|Income before                  |                        
|income taxes                   |                        
|                               |                        
|                              
|                              
|
|
|(In thousands)                
|                              
|Identifiable assets:           |                        
|Service                        |                        
|Product                        |                        
|Corporate                      |                        
|                               |                        
|Total                          |                        
|                               |                        
|Goodwill, net:                 |                        
|Service                        |                        
|Product                        |                        
|                               |                        
|Total                          |                        
|                               |                        
|Intangible assets, net:        |                        
|Service                        |                        
|Product                        |                        
|                               |                        
|Total                          |                        
|                               |                        
|Depreciation and amortization: |                        
|Service                        |                        
|Product                        |                        
|                               |                        
|Total                          |                        
|                               |                        
|Capital expenditures:          |                        
|Service                        |                        
|Product                        |                        
|                               |                        
|Total                          |                        
|                               |                        

45

(b)        Geographic
Information

|                             | Year ended September 30
|---------------------------- | -----------------------
|
|(In thousands)              
|                            
|Sales to external customers: |                        
|North America                |                        
|Pacific Rim                  |                        
|Europe                       |                        
|Other                        |                        
|                             |                        
|Total                        |                        
|                             |                        
|Long-lived assets:           |                        
|North America                |                        
|Europe                       |                        
|                             |                        
|Total                        |                        
|                             |                        

(c)        Major
Customers

| | During 2003 Pfizer and Pharmacia, our two largest clients in 2002 and 2001,
merged. In 2004, 2003 and 2002, Pfizer (and predecessor companies) would have
accounted for approximately 12.5%, 16.0%, and 28.3%, respectively, of the
Companys total revenues and 11.0% and 17.2% of total trade accounts
receivable at September 30, 2004 and 2003, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(12)        Related
Party Transactions

| | As of September 30, 2004, we have two notes payable totaling $600,000 to
one of our current directors (a former director of PKLB). Prior to the
acquisition of PKLB, this director made loans to PKLB to support their cash
needs under the terms of a $350,000 convertible promissory note dated November
22, 2002 (Old Note). On December 31, 2003, the Company issued a $350,000 8% new
convertible note payable (New Note), in exchange for the Old Note. The New Note
was convertible into the Companys common shares at a price based upon the
market price of the common shares at or about the time of the conversion and was
scheduled to mature on June 1, 2005. On that same day, the Company prepaid
$100,000 of the outstanding principal amount of the New Note, plus approximately
$31,000 in accrued interest, and the holder converted $150,000 of the New Note
into 38,042 of the Companys common shares. Following the prepayment and
conversion, the Company issued the holder a new 8% note due June 2, 2005, on
substantially the same terms as the New Note, for the remaining $100,000
principal amount. The director also received a $500,000 6% subordinated note, in
exchange for his preferred shares of PKLB, issued in the acquisition of PKLB
(note 7).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46

Item 9.    Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.

On July 14, 2004, the Companys Audit Committee of the Board of Directors
approved the dismissal of the Companys independent public accountants and
replaced  Ernst & Young, LLP (E&Y) with KPMG LLP
(KPMG).

The reports of E&Y for the past two fiscal years ended September 30, 2003
and 2002, contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting
principles.

In connection with its audits for the two fiscal years ended September 30, 2003
and 2002 and through July 14, 2004, there have been no disagreements with
E&Y on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of E&Y, would have caused them to make reference to the
subject matter of the disagreement in connection with their report on the
financial statements for such period.

During the two fiscal years ended September 30, 2003 and 2002, and through July
14, 2004, there have been no reportable events (as defined in Regulation S-K,
Item 304(a)(1)(v)), except for a material weakness in the Companys
internal control for the year ended September 30, 2003 which was identified by
E&Y and disclosed in Item 9A in the Companys Annual Report on Form
10-K for the year ended September 30, 2003. Specifically, the independent
auditors noted that the Companys internal control failed to timely alert
management of potential loan covenant noncompliance. The Company did not have
procedures in place to monitor near-term future financial position and results
of operations to enable it to take operational action in the event of potential
loan covenant noncompliance. The Company has taken measures to correct this
material weakness in the form of enhancing its planning process and creating
procedures to more timely identify credit agreement compliance issues. E&Y
discussed this issue with the Audit Committee of the Board of Directors, and has
responded as authorized by the Company to the inquiries of KPMG.

Item 9A.    Controls and Procedures.

Based on their most recent evaluation, which was completed as of September 30,
2004, the Companys Chief Executive Officer and Chief Financial Officer
believe that, because of the situation described below, the Companys
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) were not effective as of September 30, 2004 to ensure that
information required to be disclosed by the Company in this Form 10-K was
recorded, processed, summarized and reported within the time periods specified
by the Securities and Exchange Commissions rules and forms. The Company
currently operates on accounting systems that are different at its various
locations, and which are decentralized and obsolete. The Chief Executive Officer
and Chief Financial Officer have concluded that the Companys current
accounting systems have prevented the Company from completing and having audited
on a timely basis the accounting information necessary to complete this Form
10-K. The Company is taking steps to standardize, centralize and update the
accounting systems. The Chief Executive Officer and Chief Financial Officer
believe that implementation of these new accounting systems will allow the
Company to record, process, summarize and report accounting information to
timely file its Exchange Act reports.

There were no significant changes in the Companys internal controls or
other factors that could significantly affect those controls subsequent to the
date of their evaluation, which was completed as of September 30,
2004.

47

PART III

Item 10.    Directors and Executive Officers of the
Registrant.

The following information concerns the persons who served as the directors of
the Company as of September 30, 2004. Except as indicated in the following
paragraphs, the principal occupations of these persons has not changed in the
past five years. Information concerning the executive officers of the Company
may be found in Executive Officers of the Registrant under Item 1 of
this report, which is incorporated herein by reference.

|Name                     | Age | Position                                                          
|------------------------ | --- | ------------------------------------------------------------------
|Peter T. Kissinger, Ph.D | 60  | Chairman of the Board; President; Chief Executive Officer         
|Ronald E. Shoup, Ph.D    | 53  | Chief Operating Officer, BASi Contract Research Services; Director
|Candice B. Kissinger     | 53  | Senior Vice President, Marketing; Secretary and Director          
|William E. Baitinger     | 71  | Director                                                          
|David W. Crabb           | 50  | Director                                                          
|Leslie B. Daniels        | 57  | Director                                                          
|Gayl W. Doster           | 66  | Director                                                          
|W. Leigh Thompson        | 66  | Director                                                          

Information concerning Peter T. Kissinger, Ph.D. is incorporated by
reference to the discussion under Item 1 "Executive Officers of the Registrant"
in this report.

Information concerning Ronald E. Shoup, Ph.D. is incorporated by
reference to the discussion under Item 1 "Executive Officers of the Registrant"
in this report.

Information concerning Candice B. Kissinger is incorporated by reference to the
discussion under Item 1 Executive Officers of the Registrant in this
report.

William E. Baitinger has served as a director of the Company since 1979. Mr.
Baitinger was Director of Technology Transfer for the Purdue Research Foundation
from 1988 until 2000. In this capacity he was responsible for all licensing and
commercialization activities from Purdue University. He currently serves as
Special Assistant to the Vice President for Research at Purdue University. Mr.
Baitinger has a Bachelor of Science degree in Chemistry and Physics from
Marietta College and a Master of Science degree in Chemistry from Purdue
University.

David W. Crabb, M.D. has served as a director of the Company since
February, 2004. He has been Chairman of the Indiana University Department of
Medicine since 2001. Previously he had served as Chief Resident of Internal
Medicine and on the Medicine and Biochemistry faculty of Indiana University. He
was appointed Vice Chairman for Research for the department and later Assistant
Dean for Research. Dr. Crabb serves on several editorial boards and on the Board
of Scientific Counselors for the National Institute on Alcohol Abuse and
Alcoholism. He is a recipient of a NIH Merit award and numerous other research
and teaching awards.

Leslie B. Daniels served as a director of PharmaKinetics Laboratories,
Inc., recently acquired by the Company. Mr. Daniels is a founding partner of
CAI, a private equity fund in New York City. He previously was President of
Burdge, Daniels & Co., Inc., a principal in venture capital and buyout
investments as well as trading of private placement securities, and before that,
a Senior Vice President of Blyth, Eastman, Dillon & Co. where he had
responsibility for the corporate fixed income sales and trading departments. Mr.
Daniels is a former Director of Aster-Cephac SA, IVAX Corporation, MIM
Corporation, Mylan Laboratories, Inc., NBS Technologies Inc. and MIST Inc. He
was also Chairman of Zenith Laboratories, Inc. and currently serves as a
Director of SafeGuard Health Enterprises, Inc.

Gayl W. Doster has served as a Director and member of the Audit Committee of the
Company since August, 2004.  Mr. Doster is also a director of META Group,
Inc., a publicly traded NASDAQ company.  He is a CPA and was
the President and Chief Operating Officer of Sigma Micro Corporation, a computer
software company, from January 1997 until his retirement in December 2002. 
Previously, he served as Professor of Community Pharmacy Management,
College of Pharmacy, University of Rhode Island from October 1995 to January
1997. Mr. Doster received a BS in Accounting from the Indiana University Kelley
School of Business and earned his CPA in 1965 while working for Ernst &
Young.

48

W. Leigh Thompson, Ph.D., M.D. has served as a director of the Company since
January 1997. Since 1995, Dr. Thompson has been Chief Executive Officer of
Profound Quality Resources, Inc., a scientific consulting firm. Prior to 1995,
Dr. Thompson was Professor of Medicine at Case Western Reserve and Indiana
Universities, President of the society of Critical Care Medicine and Chief
Scientific Officer at Eli Lilly and Company. He earned a Bachelor of Science
degree in Biology from the College of Charleston, a Master of Science and a
Ph.D. in Pharmacology from the Medical University of South Carolina, a Medical
Doctor degree from The Johns Hopkins University and was awarded a Ph.D. of
Science from the Medical University of South Carolina. Dr. Thompson is also a
director and Chairman of the Board of Inspire Pharmaceuticals, Inc.

The Board of Directors has established an Audit Committee. The Audit Committee
is responsible for recommending independent auditors, reviewing, in connection
with the independent auditors, the audit plan, the adequacy of internal
controls, the audit report and management letter and undertaking such other
incidental functions as the board may authorize. The Board of Directors has
determined that Gayl W. Doster is an audit committee financial expert (as
defined by Item 401(h) of Regulation S-K). Gayl W. Doster is
independent (as defined by Item 7(d)(3)(iv) of Schedule
14A).

The Board of Directors has adopted a Code of Ethics that applies to the
Companys Officers and Directors.

Item 11.    Executive Compensation.

The information included under the captions Election of Directors 
Compensation of Directors and Executive Compensation in the
Proxy Statement is incorporated herein by reference in response to this
item.

Item 12.    Security Ownership of Certain Beneficial Owners
and Management.

The information contained under the captions Share Ownership of Certain
Beneficial Owners and Management and Equity Compensation Plan
Information in the Proxy Statement is incorporated herein by reference in
response to this item.

For additional information regarding the Companys stock option plans,
please see Note 9 in the Notes to Consolidated Financial Statements in this
report.

Item 13.    Certain Relationships and Related Transactions.

The information included under the caption Certain Relationships and
Related Transactions in the Proxy Statement is incorporated herein by
reference in response to this item.

Item 14.    Principal Accounting Fees and Services.

The information included under the caption Selection of Independent
Accountants in the Proxy Statement is incorporated herein by
reference.

[Remainder of page intentionally
left blank.]

49

PART IV

Item 15.    Exhibits, Financial Statement Schedules and
Reports on Form 8-K.

(a)        
Documents filed as part of this Report.

| | 1. | Financial Statements:
Included in Item 8 of Part II of this report as follows:
Report of Independent Auditors.
Consolidated Balance Sheets as of September 30, 2004 and 2003.
Consolidated Statements of Operations for the Years Ended September 30, 2004, 2003 and 2002.
Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2004, 2003 and 2002.
Consolidated Statements of Cash Flows for the Years Ended September 30, 2004, 2003 and 2002.
Notes to Consolidated Financial Statements.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Financial Statement Schedules:
Schedules are not required, are not applicable or the information is shown in
the Notes to the Consolidated Financial Statements.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)        
Reports on Form 8-K.

Report dated September 22, 2004 under Item 7.01 Regulation FD
Disclosure the Company issued a press release announcing the termination
of the Purchase and Sale Agreement between PKLB Limited Partnership, a
wholly-owned subsidiary of the Company, and Donohoe dated July 26, 2004.

Report dated August 19, 2004 under Item 9 Regulation FD Disclosure
the Company issued a press release announcing that Gayl W. Doster has been
elected to its Board of Directors.

Report dated August 11, 2004, under Item 12 Results of Operations and
Financial Condition the Company issued a press release providing
information on earnings and other financial results for its third quarter of
fiscal 2004 ended June 30, 2004.

Report dated July 26, 2004, under Item 9 Regulation FD Disclosure
the Company issued a press release announcing that the Company has reached an
agreement (in principle) providing for the sale and leaseback of the building
that currently houses its clinical research facility in downtown Baltimore,
Maryland.

Report dated July 14, 2004 under Item 4 Changes in Registrants
Certifying Accountants the Companys Audit Committee of the Board of
Directors approved a change in the Companys independent public accountants
and replaced  Ernst & Young, LLP (E&Y) with KPMG LLP
(KPMG).

(c)        
Exhibits. See Index to Exhibits.

50

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|Date:  January 13, 2005 | BIOANALYTICAL SYSTEMS, INC.
(Registrant)
By:  /s/  Peter T. Kissinger
Peter T. Kissinger
President, Chairman and Chief Executive Officer
By:  /s/  Michael R. Cox
Michael R. Cox
Vice President, Finance, Chief Financial Officer and
Treasurer
|----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

51

Pursuant to the requirements of 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 dates indicated.

|Signature                                 | Capacity                                                                                                  | Date            
|----------------------------------------- | --------------------------------------------------------------------------------------------------------- | ----------------
|                                         
|                                         
|/s/  Peter T. KissingerPeter T. Kissinger | President, Chairman and ChiefExecutive Officer and Director(Principal Executive Officer)                  | January 13, 2005
|                                         
|                                         
|/s/  Michael R. CoxMichael R. Cox         | Vice President, Finance, Chief FinancialOfficer and Treasurer(Principal Financial and Accounting Officer) | January 13, 2005
|                                         
|                                         
|/s/  William E. Baitinger                 | Director                                                                                                  | January 13, 2004
|William E. Baitinger                     
|                                         
|                                         
|/s/  David W. Crabb                       | Director                                                                                                  | January 13, 2005
|David W. Crabb                           
|                                         
|                                         
|/s/  Gayl W. Doster                       | Director                                                                                                  | January 13, 2005
|Gayl W. Doster                           
|                                         
|                                         
|/s/  Candice B. Kissinger                 | Director                                                                                                  | January 13, 2005
|Candice B. Kissinger                     
|                                         
|                                         
|/s/  Ronald E. Shoup                      | Director                                                                                                  | January 13, 2005
|Ronald E. Shoup                          
|                                         
|                                         
|                                          | Director                                                                                                  |                 
|Leslie B. Daniels                        
|                                         
|                                         
|                                          | Director                                                                                                  |                 
|W. Leigh Thompson                        

52

INDEX TO EXHIBITS

|NumberAssigned InRegulation S-KItem 601 |  | Description of Exhibits | 
|--------------------------------------- |  | ----------------------- | 

|(3) | 3.1 | Second Amended and Restated Articles of Incorporation of Bioanalytical Systems,
Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter
ended December 31, 1997). | 
|--- | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 3.2 | Second Restated Bylaws of Bioanalytical Systems, Inc.
(incorporated by reference to Exhibit 3.2 to Form 10-Q for the
quarter ended December 31, 1997). | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | 

|(4) | 4.1 | Specimen Certificate for Common Shares (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-1,
Registration No. 333-36429). | 
|--- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 4.2 | See Exhibits 3.1 and 3.2 to this Form 10-K. | 
| | --- | ------------------------------------------- | 

| | 4.3 | Form of 6% Subordinated Convertible Note due 2008 (incorporated
by reference to Form 8-K filed November 21, 2002). | 
| | --- | ------------------------------------------------------------------------------------------------------------------ | 

| | 4.4 | Form of 10% Subordinated Note due 2007 (incorporated by
reference to Exhibit 4.3 of Form 10-Q for the quarter ended June
30, 2003). | 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------- | 

|(10) | 10.1 | Bioanalytical Systems, Inc. 1990 Employee Incentive Stock Option
Plan (incorporated by reference to Exhibit 10.4 to Registration
Statement on Form S-1, Registration No. 333-36429). | 
|---- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | 10.2 | Form of Bioanalytical Systems, Inc. 1990 Employee Incentive
Stock Option Agreement (incorporated by reference to Exhibit
10.5 to Registration Statement on Form S-1, Registration No.
333-36429). | 
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.3 | Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option
Plan, as amended January 24, 2003 (incorporated by reference to
A to definitive Proxy Statement filed January 28, 2003 SEC File
No. 000-23357). | 
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.4 | Form of Bioanalytical Systems, Inc. 1997 Employee Incentive
Stock Option Agreement (incorporated by reference to Exhibit
10.27 to Registration Statement on Form S-1, Registration No.
333-36429). | 
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.5 | 1997 Bioanalytical Systems, Inc. Outside Director Stock Option
Plan, as amended January 24, 2003 (incorporated by reference to
B to definitive Proxy Statement SEC File No. 000-23357). | 
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

53

|NumberAssigned InRegulation S-KItem 601 |  | Description of Exhibits | 
|--------------------------------------- |  | ----------------------- | 

| | 10.6 | Form of Bioanalytical Systems, Inc. 1997 Outside Director Stock
Option Agreement. | 
| | ---- | --------------------------------------------------------------------------------- | 

| | 10.7 | Master Equipment Lease Agreement by and between Bioanalytical
Systems, Inc. and Keycorp Leasing, dated December 5, 1997
(incorporated by reference to Exhibit 10.9 of Form 10-K for the
fiscal year ended September 30, 2002). | 
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | 10.8 | Amended and Restated Credit Agreement by and between
Bioanalytical Systems, Inc., and National City Bank, executed
January 4, 2005 (incorporated by reference to Exhibit 10.5 of
Form 8-K filed January 10, 2005). | 
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | 10.9 | Amended and Restated General Security Agreement by and between
Bioanalytical Systems, Inc. and National City Bank executed
January 4, 2005 (incorporated by reference to Exhibit 10.7 of
Form 8-K filed January 10, 2005). | 
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.10 | Trademark Security Agreement by and between Bioanalytical
Systems and The Provident Bank, dated October 29, 2002
(incorporated by reference to Exhibit 10.12 of Form 10-K for the
fiscal year ended September 30, 2002). | 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| | 10.11 | Patent Security Agreement by and between Bioanalytical Systems
and The Provident Bank, dated October 29, 2002 (incorporated by
reference to Exhibit 10.13 of Form 10-K for the fiscal year
ended September 30, 2002). | 
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.12 | Replacement Promissory Note by and between Bioanalytical
Systems, Inc. and National City Bank, executed January 4, 2005
(incorporated by reference to Exhibit 10.6 of Form 8-K filed
January 10, 2005). | 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.13 | Loan Agreement between Bioanalytical Systems, Inc. and Union
Planters Bank, dated October 29, 2002 (incorporated by reference
to Exhibit 10.15 of Form 10-K for the fiscal year ended
September 30, 2002). | 
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.14 | Real Estate Mortgage and Security Agreement between
Bioanalytical Systems, Inc. and Union Planters Bank, dated
October 29, 2002 (incorporated by reference to Exhibit 10.16 of
Form 10-K for the fiscal year ended September 30, 2002). | 
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.15 | Real Estate Mortgage and Security Agreement between
Bioanalytical Systems, Inc. and Union Planters Bank, dated
October 29, 2002 (incorporated by reference to Exhibit 10.17 of
Form 10-K for the fiscal year ended September 30, 2002). | 
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

54

|NumberAssigned InRegulation S-KItem 601 |  | Description of Exhibits | 
|--------------------------------------- |  | ----------------------- | 

| | 10.16 | Term Loan Promissory Note made by Bioanalytical Systems, Inc. in
favor of Union Planters Bank, dated October 29, 2002
(incorporated by reference to Exhibit 10.18 of Form 10-K for the
fiscal year ended September 30, 2002). | 
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.17 | Promissory Note made by Bioanalytical Systems, Inc. in favor of
Union Planters Bank, dated October 29, 2002 (incorporated by
reference to Exhibit 10.19 of Form 10-K for the fiscal year
ended September 30, 2002). | 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.18 | Letter Agreement by and between Bioanalytical Systems, Inc. and
Michael P. Silvon dated March 12, 1997. | 
| | ----- | ------------------------------------------------------------------------------------------------------- | 

| | 10.19 | Purchase and Sale Agreement between BASi Maryland, Inc. and 300
W. Fayette, LLC, closed January 5, 2005 (incorporated by
reference to Exhibit 10.1 of Form 8-K filed January 10, 2005). | 
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.20 | First Amendment to the Purchase and Sale Agreement dated
September 7, 2004. | 
| | ----- | --------------------------------------------------------------------------- | 

| | 10.21 | Second Amendment to the Purchase and Sale Agreement
dated on or about November 11, 2004. | 
| | ----- | ---------------------------------------------------------------------------------------- | 

| | 10.22 | Office Lease by and between BASi Maryland, Inc. and 300 W. Fayette Street LLC,
dated on or about January 5, 2005. | 
| | ----- | ----------------------------------------------------------------------------------------------------------------- | 

|(13) |  | 2004 Annual Report. This report, except for those portions which
are expressly incorporated by reference in this Form 10-K, is
furnished for the information of the Commission and is not to be
deemed "filed" as part of this Form 10-K. | 
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

|(21) | 21.1 | Subsidiaries of the Registrant | 
|---- | ---- | ------------------------------ | 

|(23) | 23.1 | Consent of Independent Public Accountants KPMG LLP | 
|---- | ---- | -------------------------------------------------- | 

| | 23.2 | Consent of Independent Public Accountants Ernst & Young LLP | 
| | ---- | ----------------------------------------------------------- | 

|(31) | 31.1 | Certification of Chief Executive Officer | 
|---- | ---- | ---------------------------------------- | 

| | 31.2 | Certification of Chief Financial Officer | 
| | ---- | ---------------------------------------- | 

|(32) |  | Section 1350 Certifications | 
|---- |  | --------------------------- | 

|(99) | 99 | Risk Factors | 
|---- | -- | ------------ | 

55