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

# FORM 10-K

(Mark One)
[ X ]    ANNUAL  REPORT  PURSUANT TO SECTION 13 OR
15(d)     OF     THE      SECURITIES      EXCHANGE      ACT     OF      1934
            for   the   fiscal   year  ended
September 30, 2003.
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  
X     
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  X

Based on the closing price on the NASDAQ stock market on January 12, 2004,  the
aggregate  market  value of the  voting and  non-voting  common  equity  held by
non-affiliates  of the  registrant  is  $22,979,280.  As of January 12, 2004,
4,869,502 shares of registrants common shares were outstanding.  No shares
of  registrants  Preferred  Stock  were  outstanding  as of  January 12, 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, 2003 | Part II                      
|
| | Proxy Statement                                                               | Part III                     

TABLE OF CONTENTS

|         |                                                                                       | Page
|-------- | ------------------------------------------------------------------------------------- | ----
|Part I   |                                                                                       | 3   
|Item 1.  | Business                                                                              | 3   
|Item 2.  | Properties                                                                            | 16  
|Item 3.  | Legal Proceedings                                                                     | 17  
|Item 4.  | Submission of Matters to a Vote of Security Holders                                   | 17  
|        
|Part II  |                                                                                       | 18  
|Item 5.  | Market for Registrant's Common Equity and Related Stockholder Matters                 | 18  
|Item 6.  | Selected Financial Data                                                               | 18  
|Item 7.  | Management's Discussion and Analysis of Financial Condition and Results of Operations | 18  
|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  | 49  
|Item 9A. | Controls and Procedures                                                               | 49  
|        
|Part III |                                                                                       | 49  
|Item 10. | Directors and Executive Officers of the Registrant                                    | 49  
|Item 11. | Executive Compensation                                                                | 50  
|Item 12. | Security Ownership of Certain Beneficial Owners and Management                        | 50  
|Item 13. | Certain Relationships and Related Transactions                                        | 51  
|Item 14. | Principal Accounting Fees and Services                                                | 51  
|        
|Part IV  |                                                                                       | 52  
|Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       | 52  



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 device and biotechnology companies. 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, when it was formed as a
corporation in Michigan.

The Company offers an
efficient, variable cost alternative to its 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 manufacturers. The Company derives its revenues
from sales of its research services and drug development tools, both focused on
determining drug safety and efficacy.

The Company supports
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 the Companys 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 through the conversion of $791,000 in convertible
notes receivable to 4,992,300 shares of PKLB common stock, representing a 67% interest. On
June 30, 2003, the Company completed its acquisition of PKLB through the exchange of
approximately 228,857 shares of the Company's common stock valued at $1,178,614 for all of the
outstanding common stock and Class B preferred stock of PKLB, and the issuance of
$4,000,000 of 6% convertible notes payable due 2008 (6% Notes) for all of
PKLBs Class A redeemable preferred stock. These 6% Notes do not bear interest for
the first year after their date of issuance and are convertible into approximately 249,990
shares of the Company's common stock. The Company paid cash aggregating $1,505,886 representing
acquisition costs and cash advances made to PKLB from June 2002 through May 2003.
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 US. The PKLB client list and business
development staff who joined the Company through the acquisition have
strengthened the Companys client base as expected. In addition, the PKLB
acquisition provides a Good Clinical Practice (GCP) and Good
Laboratory Practice (GLP) compliant facility and a portfolio of
bioanalytical methods complementary to the Companys.

3

The acquisition
included a seven story, 126,000 square foot historical building in the heart of the urban
revival of west Baltimore. The Company has listed the building at 302 Fayette St. for sale
to exploit a strengthening real estate market. The Company is assessing this and other
locations to optimize operating efficiency.

PKLBs recent
operating performance, prior to the acquisition, had been poor. At the time of the
acquisition the Company planned to make, and 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 purchased all of the outstanding shares
of LCR for $1,998,847. The purchase price consisted of $198,847 in cash and $1.8
million in 10% subordinated notes maturing on October 1, 2007. The holders of
the notes 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. LCR has been renamed BASi Northwest Laboratory, Inc.

The Company recognizes
that LCR has a stellar reputation in liquid chromatography and bioanalysis,         and
provided a location that is significantly closer to clients on the West Coast of
the US, which is an additional benefit of the acquisition. As with PKLB, LCR
provided a GLP and Good Manufacturing Practice (GMP) compliant
facility, and a portfolio of clients and proprietary bioanalytical methods that
were highly complementary to the Companys.

Changing Nature of the Pharmaceutical Industry

The Companys
services and products are marketed globally to pharmaceutical, medical device and biotech
companies engaged in drug and medical device development. The research services industry
is highly fragmented among hundreds of 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

End users 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.

4

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. Perceived as higher risk
in a risk-averse market, smaller drug discovery firms struggled to find funding in 2003.
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.

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

The FDA requires more
data and greater access to that data and is encouraging use of computer-assisted filings
to expedite approval.

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 US 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.

5

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 chromotography coupled to mass spectometry is now a mainstay of
the Company's bioanalytical laboratories. The Company has invested heavily in
robotics and mass spectometry 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.

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.

6

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 laboratory 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.

The Pharmaceutical
Research and Manufacturing Association (PhRMA) states that pharmaceutical and
biotechnology companies spent $32 billion worldwide on research and development in 2002.
CenterWatch reports that outsourced research and development services will grow from $7
billion in 2002 to more than $9 billion by 2004. The Company believes this growing trend
toward outsourcing will continue.

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 $19,986,734 for fiscal year 2003. 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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 $9,852,220 for fiscal year 2003. 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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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 2003 research and development
spending. The Company has been recognized as a preferred vendor, or a tactical partner, to
3 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
recognizes that increasing its focus on a larger number of specialist service buyers at
large and small clients demands more active and more fragmented business development
effort staffed with specialists. The Company has adapted accordingly.

8

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

During 2003
Pfizer and Pharmacia, the Companys two largest clients in 2002 and 2001,
merged. Treated as a single entity in 2003, 2002 and 2001, Pfizer would have
accounted for approximately 16.0%, 28.3% and 30.6%, respectively, of the
Companys total revenues and 17.2% and 22.0% of total trade accounts
receivable at September 30, 2003 and 2002, respectively.

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
2003, Pfizer restructured and repatriated their preclinical development effort
in Kalamazoo, MI, minimizing outsourcing for the short and possibly long-term.
This is a key client for the Companys Evansville, IN preclinical research
site. This change significantly reduced revenue in Evansville for 2003.
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.

Generally, the
Companys research contracts are terminable by the client upon 30 days written notice
at any time. Most service contracts have cancellation charges. Those charges vary,
depending on the type of service provided and the investment in materials and the
facilities and people committed. Cancellation fees after contract signing but before study
commencement can vary, depending on the total contracted costs of the study and how much
notice is given before the study is scheduled to begin. In virtually all recorded studies
cancelled while in progress, the Company has recovered all prepaid costs, normally 25% to
50% of total project costs. Additional charges are often also applied. Contracts may be
terminated for a variety of reasons, including the clients decision to forego a
particular study, failure of products to satisfy safety requirements, and/or unexpected or
undesired product testing results.

The acquisition of LC
Resources, Inc. and PharmaKinetics Laboratories, Inc. significantly broadened the
Companys key client portfolio. The Company notes roughly 50 clients who appear on
only one of the three entities client lists. LC Resources establishes a strong
reputation among roughly 40 key clients, most of which are smaller drug developers located
in the Western U.S. and Canada.

PharmaKinetics
Laboratories, Inc. has served most of the leading US and Canadian generic drug firms.
Neither the Company nor LC Resources had a significant presence in this sector. Among 63
top clients served by the Company and its acquisitions, only 13 drug development companies
had contact with more than one of these groups; 29 were completely new to the Company. The
Company believes that the acquisitions were highly complementary to the Company.

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 end user. 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. 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.

9

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 results.

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 materiel 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 and understanding of the Companys business
taken as a whole.

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:

10

| |  | 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.

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:

11

| |  | 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 United States National Institutes of Health Office of
Laboratory Animal Welfare.

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 the Baltimore City Health Department (for the Maryland
State Department of Health and Mental Hygiene), the Center for Disease Control of the
United States Department of Health and Human Services and other state and local agencies
where the Companys facility is located. The Company has not experienced any
significant problems to date in complying with such agencies and does not believe that any
existing or proposed regulations will require material capital expenditures or changes in
its method of operation.

Quality
Assurance & 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 2003, the
Company endeavored to standardize SOPs across all relevant operations. In
addition the Company purchased software to ensure compliant documentation,
handling and reporting of all laboratory generated study data. In fiscal 2004
the Company has purchased similar 21 CFR part 11 compliant software for its
preclinical research group and is currently installing and validating that
software. These experiences proved valuable as the Company evaluates Enterprise
Resource and Planning software. The Company envisions having some modules of
this purchased system functional by the end of calendar 2004.

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.

12

The Companys
activities also involve the controlled use of hazardous materials and chemicals. The
Company is subject to foreign, federal, state and local laws and regulations governing the
use, storage, handling and disposal of such materials and certain waste products, as well
as the safety and health of laboratory employees.

Our US 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.

HIPAA

The Department of
Health and Human Services recently promulgated final regulations under the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) that will govern
the disclosure of confidential medical information in the United States. The Privacy Rule,
which governs disclosure of confidential information, was effective beginning April 14,
2001, and all companies subject to the Privacy Rule must comply with its provisions on or
before April 14, 2003. We have 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.

13

Research and Development

In fiscal year 2003,
the Company spent $1,326,933 on research and development, a 13% reduction from fiscal
2002. 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 2003 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 all research and
development dollars in 2003. The Company also makes small expenditures in novel research
and development, some under partial grants. Two NIH SBIR research grant applications were
filed in 2003 to support development of other new products.

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.

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.

Employees

At September 30, 2003,
the Company had 328 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.

14

Executive Officers of the Registrant

The following
information concerns the persons who served as the executive officers of the Company as of
September 30, 2003. 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 | 59  | Chairman of the Board;                                                                               
|                         |     | President; Chief Executive Officer                                                                   
|Ronald E. Shoup, Ph.D    | 52  | Chief Operating Officer, BASi Contract                                                               
|                         |     | Research Services; Director                                                                          
|Douglas P. Wieten        | 42  | Vice President, Finance; Chief Financial                                                             
|                         |     | Officer; Treasurer [Resigned October, 31 2003]                                                       
|Candice B. Kissinger     | 52  | Senior Vice President, Marketing;                                                                    
|                         |     | Secretary and Director                                                                               
|Craig S. Bruntlett, Ph.D | 54  | Senior Vice President, International Sales                                                           
|Donnie A. Evans          | 57  | Vice President, Engineering                                                                          
|Lina L. Reeves-Kerner    | 52  | Vice President, Human Resources                                                                      
|Michael P. Silvon, Ph.D  | 56  | Vice President, Planning and Development
Chief Financial Officer (Interim) [Effective November, 2003]

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 BAS
Contract Research Services and is Managing Director of BAS Analytics, Ltd. in
the UK. His current responsibilities include operating the Companys
Contract Research Services sites in Evansville, IN; McMinnville, OR;
Warwickshire, UK; Baltimore, MD; and West Lafayette, IN. 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 PhD in
Analytical Chemistry. He has served on the Companys board of directors
since 1991.

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.

Douglas P.
Wieten was Vice President, Finance since February 1999, Chief Financial
Officer since September 1997 and Treasurer since March 1997. He served as
Corporate Controller from 1992 to February 1999. Prior to that time, Mr. Wieten
worked at Ernst & Young LLP, where he had been employed since 1984. Mr.
Wieten is a certified public accountant and has a Bachelor of Science degree in
Accounting from Butler University. Mr. Wieten resigned from his positions
effective October 31, 2003.

15

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.

Donnie A. Evans has
been Vice President, Engineering Services since January of 1988. Mr. Evans is
also responsible for the Company's information technology infrastructure. Mr.
Evans was the Company's first full-time employee, beginning as an electronics
engineer in 1978.

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. He has
also served as Interim Chief Financial Officer since November 2003. 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 115,000 square feet of operations,
manufacturing, and administrative space. Both the services unit and the products
units conduct operations at this facility. The Company expects a new 20,000
square foot ADME preclinical research facility to be 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. This
new facility is has been financed by a construction loan.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BAS Evansville occupies 10 buildings with roughly 100,000 square feet of operating and
administrative space on 52 acres. Laboratory space at this site was recently enlarged by
roughly 80% in two phases and commissioned in March 2003. Most of this site is engaged in
preclinical toxicology testing of developmental drugs in animal models. The expansions
completed in March 2003 are mortgaged.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BASi Clinical Research Unit (BASi Maryland) in Baltimore, MD occupies a seven story,
126,000 square foot historic building in downtown Baltimore. Consistent with the
covenants contained in the Company's credit agreement, this building was listed for
sale in October 2003 with a realtor. This site contains a 110 bed, 3 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

| |  | 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. One third of this leased facility was added in
2003. BAS Instruments was recently relocated from Congleton, UK to Warwickshire reducing
duplication of administrative services.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | BASi Northwest Laboratory is in McMinnville, OR, a suburb of 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 Note 7 to the Notes to
Consolidated Financial Statements.

Item 3.        Legal Proceedings.

Not applicable.

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

Not applicable.

17

Part II

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

Market for
Registrants Common Equity and Related Stockholder Matters in our 2003 Annual
Report is incorporated herein by reference.

Please see Item 12 of
this report for a description of the Companys equity compensation plans.

Item 6.        Selected Financial
Data.

You can find Selected
Financial Data for each of our five most recent fiscal years in our 2003 Annual
Report under Selected Consolidated Financial Data. That information
is incorporated herein by reference.

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 Company provides a range
of value-added services and products oriented around complex chemical analysis to the
worldwide pharmaceutical, medical device and biotechnology industries. The Companys
customer-focused approach and its high-quality services and products enable it to serve as
a value-added partner, solving complex scientific problems cost-effectively and, providing
results to its customers quickly. Founded in 1974, the Company grew through expansion and
strategic acquisitions. The Company has developed technical expertise in bioanalytical chemistry,
separations science, electrochemistry, in vivo sampling, and preclinical monitoring of
animal models. The Company is positioned to exploit drug development market globalization and
create innovative new services and products for its clients.

Throughout its history, the Company has taken steps to position itself as a leader in
life sciences research.

Company Timeline

| |  | 1975: built sales among several academic customers and multiple
international distributors.
| | - | -------------------------------------------------------------------------------------------

| |  | 1981: penetrated
Japan with the creation of BAS Japan, an independent product distributor.
| | - | ------------------------------------------------------------------------------------------

18

| |  | 1988: enhanced
its software technology base by acquiring Interactive Microware, Inc. in State College,
PA.
| | - | ----------------------------------------------------------------------------------------------------------

| |  | 1988: began
offering contract services to customers who lacked the time or expertise to perform
analyses using the Companys analytical products.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 1995: acquired a distributor, BAS Instruments Ltd., to further solidify
its presence in the United Kingdom.
| | - | -----------------------------------------------------------------------------------------------------------

| |  | 1998: acquired
a manufacturer of veterinary monitoring and diagnostic equipment, BASi Vetronics, to
complement other product lines and provide a starting point for its interest in
preclinical physiology monitoring.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 1998: acquired
a contract services firm, BAS Analytics Ltd., to offer local bioanalytical service in the
United Kingdom.
| | - | ------------------------------------------------------------------------------------------------------------------------

| |  | 2000: acquired
a contract services firm, BAS Evansville, to provide preclinical toxicology and pathology
services.
| | - | ------------------------------------------------------------------------------------------------------------------

| |  | December
2002: acquired a contract services firm, LC Resources, Inc. placing the Company
nearer its clients on the west coast and creating its third satellite bioanalytical
facility
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | June
2003: acquired PharmaKinetics Laboratories, Inc. establishing a significant east
coast presence, entering Phase I through III clinical trials and completing its fourth
bioanalytical satellite lab.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenues are derived
from contract research services, and the sale of the Companys in vivo sampling systems,
analytical instruments and other products. All capitalize on the Companys ability to
resolve client problems by monitoring chemistry and toxicology in living systems.
The Companys products are sold primarily to pharmaceutical firms and research
organizations. Principal customers include scientists engaged in drug metabolism studies
and basic neuroscience research. The Company was the first to commercialize liquid chromatography
and electrochemical techniques which are now the standard for determination of
neurotransmitters.

The Companys management
believes that fluctuations in the Companys quarterly results are caused by a number of
factors, including:

| |  | Success
in attracting new business,
| | - | -----------------------------------

| |  | Size
and duration of service contracts,
| | - | ---------------------------------------

| |  | Timing
of its clients decisions to enter into new contracts,
| | - | -------------------------------------------------------------

| |  | Periodic
capacity constraints,
| | - | ------------------------------

| |  | Cancellation
or delays of ongoing contracts without cause, and
| | - | --------------------------------------------------------------

| |  | Other
factors, many of which are beyond the Companys control.
| | - | --------------------------------------------------------------

In fiscal
2003, 20% of the Companys total revenue was derived from customers located
outside the United States. These markets tend to be much more volatile than the
United States market. Significant governmental, regulatory, political, economic
and cultural issues or changes could adversely affect the growth or by
profitability of the Companys business activities in any such market.
International performance is described in Note 11 in Notes to Consolidated
Financial Statements included in Item 8 of this report.

Results of Operations

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.

19

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. The Company expects revenue and earnings to
improve as all of these operations are more fully integrated, and as more
aggressive marketing, cost containment and productivity improvement measures
continue in 2004.

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 whom 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.
The Companys effective tax rate for 2003 was 84.7%, compared to 30.9% for
fiscal 2002. The Company has foreign 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 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.

Year Ended September 30, 2002, Compared with Year Ended September 30,
2001

Total revenue
for the year ended September 30, 2002 increased 4.9% to $26.5 million from $25.3
million for the year ended September 30, 2001. Service revenue increased to
$16.1 million for the year ended September 30, 2002 from $15.2 million for the
year ended September 30, 2001, primarily as a result of additional bioanalytical
service contracts. Product revenue increased to $10.4 million for the year ended
September 30, 2002 from $10.1 million for the year ended September 30, 2001,
primarily due to European product sales of the Culex® Automated Blood
Sampling System.

Costs of
revenue increased 21.3% to $15.9 million for the year ended September 30, 2002
from $13.2 million for the year ended September 30, 2001. This increase of $2.7
million was largely due to an increase in both staffing costs and the number of
employees on staff in the services segment. Costs of revenue for the Companys
services segment increased to 71.6% as a percentage of services revenue for the
year ended September 30, 2002 from 63.5% of services revenue for the year ended
September 30, 2001, due, again, to an increase in both staffing costs and the
number of employees on staff in the segment. Costs of revenue for the Companys
products segment increased to 42.3% as a percentage of product revenue for the
year ended September 30, 2002 from 34.7% of product revenue for the year ended
September 30, 2001, due primarily to a change in product mix.

Selling
expenses for the year ended September 30, 2002 decreased by 8.2% to $2.9 million
from $3.2 million during the year ended September 30, 2001, due to decreased
foreign commission expense.

Research and
development expenses, which are net of grant reimbursements, for the year ended
September 30, 2002 decreased 5.6% to $1.5 million from $1.6 million for the year
ended September 30, 2001. The decrease of $100,000 is primarily due to an
increase in grant reimbursements of $540,000 from $240,000 for the years ended
September 30, 2002 and 2001, respectively.

General and
administrative expenses, for the year ended September 30, 2002 increased 17.3%
to $4.5 million from $3.8 million for the year ended September 30, 2001,
primarily as a result of an increase on both staffing costs and the number of
employees on staff.

Other income
(expense), net, was $(79,000) in the year ended September 30, 2002 as compared
to $(384,000) in the year ended September 30, 2001, as a result of the decrease
in interest expense due primarily to a decrease in interest rates.

20

The Companys
effective tax rate for 2002 was 30.9%, compared to 43.1% for fiscal 2001. This
decrease was primarily due to the utilization of foreign net operating
losses.

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, 2003, the Company had cash and cash equivalents of
$1.4 million compared to $0.8 million at September 30, 2002.

The Companys
net cash provided by operating activities was $2.9 million for the year ended
September 30, 2003. Cash provided by operations during the year ended September
30, 2003 consisted of net income of $87,306, net non-cash charges of $2.5
million and a net increase of $0.4 million in operating assets and liabilities.
The most significant item affecting the change in operating assets and
liabilities was a decrease in inventory of $619,900 at September 30, 2003 from
an increase of $(232,969) at September 30, 2002.

Cash used by
investing activities decreased to $4.7 million for the year ended September 30,
2003 from $5.3 million for the year ended September 30, 2002, primarily due to
the sale of non-strategic assets in West Lafayette, IN, offset by capital
expenditures for construction projects in Evansville and West Lafayette and
payments for the acquisition of LC Resources and PharmaKinetics Laboratories.
Cash provided by financing activities for the year ended September 30, 2003 was
$2.4 million, compared to $3.7 million at September 30, 2002. This decrease was
primarily due to reductions in the revolving line of credit, payment of capital
lease obligations and payment for the refinancing of the Companys bank
debt in October 2002. These decreases were partially offset by borrowing under
the construction line of credit for capital projects in West Lafayette.
The Companys net cash provided by operating activities was $2.0 million
for the year ended September 30, 2002. Cash provided by operations during the
year ended September 30, 2002 consisted of net income of $1.1 million, non-cash
charges of $1.9 million and a net decrease of $1.0 million in operating assets
and liabilities. The most significant item affecting the change in operating
assets and liabilities was an increase in prepaid expenses and other assets of
$438,227 at September 30, 2002 from $232,425 at September 30, 2001.

Cash used by
investing activities increased to $5.3 million for the year ended September 30,
2002 from $1.6 million for the year ended September 30, 2001, primarily due to
capital expenditures for construction projects in Evansville and West Lafayette,
Indiana. Cash provided by financing activities for the year ended September 30,
2002 was $3.7 million due to additional borrowings on the line of credit and
increased long-term debt.

Capital Resources

Total
expenditures by the Company for property and equipment were $5.3 million (funded
by long-term debt and the construction line of credit), $4.7 million (funded by
revolving line of credit) and $1.7 million (funded by revolving line of credit),
in fiscal 2003, 2002 and 2001, 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. Capital investments for
the purchase of additional laboratory equipment are driven by anticipated
increases in research services to be provided by the Company. 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.

During 2001,
the Company commenced construction to expand facilities at its preclinical site
in Evansville, Indiana. Construction of these preclinical facilities were
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 is expected to be fully functional in April 2004 at a cost
of $3.0 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).

21

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.

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 into approximately 249,990 shares of the Company's common stock.
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 new 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. 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 new 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, 2003 the outstanding balance on this line of credit was $2,387,846.
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.

As of September 30,
2003 interest on the entire outstanding balance was based on the prime rate of
4.00%. 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. Covenants
contained in this revolving line of credit currently include obligations to list
and sell the building in Baltimore by December 31, 2004.
On October 29, 2002 the Company obtained a $2,250,000 construction loan with a
bank which expires November 1, 2012. The loan requires interest payments only
until completion of the project in West Lafayette, Indiana. Interest is charged
at the prime rate. The outstanding balance on this construction loan at
September 30, 2003 was $1,675,753.

The Company has a
mortgage note on recently completed laboratories at Evansville payable of $2,167,396 as of
September 30, 2003, which matures on May 1, 2008. The loan requires monthly payments of
principal and interest of $16,712 and a final principal payment of $1,623,832 due May 1,
2008. The note bears interest at the prime rate as of September 30, 2003.

The Company has a $5,410,000
commercial mortgage with a bank. The mortgage note requires 119 monthly principal payments
of $22,542 plus interest, followed by a final payment for the unpaid principal amount of
$2,727,502 due November 1, 2012. Interest is charged at the prime rate.

The following table
summarizes the cash payments under the Companys contractual term debt and
lease obligations at December 26, 2003 and the effect such obligations are
expected to have on its liquidity and cash flows in future periods (amounts in
thousands).

22

|                          | 2004 | 2005 | 2006 | 2007  | 2008 | After 2008 | Total
|------------------------- | ---- | ---- | ---- | ----- | ---- | ---------- | -----
|Mortgage notes payable    |      |      | $    | 381   |      | $          | 390  
|Subordinated debt*        |      |      |      | 651   |      |            | 460  
|Future debt obligtions**  |      |      |      | 36    |      |            | 69   
|Capital lease obligations |      |      |      | 187   |      |            | 84   
|Operating leases          |      |      |      | 661   |      |            | 529  
|                          |     
|                          |      |      | $    | 1,916 |      | $          | 1,532
|                          |     

*  Subordinated debt includes notes to related parties.
**  Future debt obligations is an estimate of payments upon the
conversion in April 2004 of the current construction line of credit into a $2,250,000
mortgage note payable.

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. The
Company was in violation of one of the credit agreement's financial covenants
for the fiscal year ended September 30, 2003. Subsequently, the related banks
waived the violation. The Company has projected that it will also be in
violation of one of the financial covenants for the twelve months ended December
31, 2003. On January 8, 2004, the banks waived compliance with this financial
covenant for the twelve months ended December 31, 2003 and have amended certain of
the financial covenants through September 30, 2004.

The Company has formulated and initiated a plan to further reduce debt and
improve its cash flows to better enable it to satisfy credit agreement
covenants. The plan includes, but is not limited to, aggressively marketing its
products and services in an effort to better utilize its new capacity through a
restructured business development staff, selling the building in downtown
Baltimore (as required by its credit agreement), and pursuing IT-driven
productivity improvement. Furthermore, 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 action plan described
above, will be sufficient to fund the Companys working capital and capital
expenditure requirements for the foreseeable future and through September 30,
2004.

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.

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 pre-clinical 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.

23

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 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

The Company reviews
long-lived assets and certain identifiable intangibles held and used for possible
impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In evaluating the fair value and future benefits of
its intangible assets, management performs an analysis of the anticipated undiscounted
future net cash flows of the individual assets over the remaining amortization period. The
Company recognizes an impairment loss if the carrying value of the asset exceeds the
expected future cash flows.

Goodwill is stated at
cost. Prior to October 1, 2002, goodwill was amortized on a straight-line basis. Beginning
October 1, 2002, the Company began to perform an annual test for impairment of
goodwill. This test is performed by comparing, at the reporting unit level, the carrying
value of goodwill to its fair value. The Company assesses fair value based upon its best
estimate of the present value of future cash flows that it expects to generate by the
reporting unit. The tests performed did not identify any instances of impairment. However,
changes in expectations as to the present value of the reporting units future cash
flows might impact subsequent years assessments of impairment.

Other intangible assets
are stated at cost and are amortized on a straight-line basis. The Company completes an
assessment of impairment of intangible assets whenever factors, events or changes in
circumstances indicate the carrying amount of the intangible assets to be held and used
may not be recoverable. Assessment of impairment is based on the expected undiscounted
cash flows of the assets. If an asset is determined to be impaired, an impairment loss is
recognized to the extent the carrying amount of the impaired asset exceeds fair value.

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 $1,643,095 in preliminary value of the intangible assets acquired from
PKLB, $236,477 in preliminary value was assigned to methodologies, $471,593 in
preliminary value to the customer relationships, and $953,025 in preliminary
value 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. The Company's estimate of fair values and allocation of the
purchase price is subject to change pending the conclusion of the Company's
analysis with the assistance of an independent valuation firm. Accordingly, the
carrying value of assets subject to amortization and related estimated economic
useful lives may change in future reporting periods until the Company completes
the allocation.

In connection
with adopting SFAS 142, the Company also reassessed the useful lives and the
classifications of its identifiable intangible assets and determined that they
continue to be appropriate. In 2001, the Financial Accounting Standards Board
approved the issuance of SFAS 142, Goodwill and Other Intangible
Assets, which established new accounting and reporting requirements for
goodwill and other intangible assets. The new standard requires that 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.

The Company
applied the provisions of SFAS 142 beginning on October 1, 2002. The Company has
completed a fair value based impairment test, on its goodwill acquired before
July 30, 2001, as of October 1, 2002 and then in the fourth quarter of 2003. The
test indicated that the fair value of the goodwill is equivalent to or greater
than the recorded value as of such dates.

24

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.

Undistributed earnings
in the Companys foreign subsidiaries are considered by management to be permanently
reinvested in such subsidiaries. Consequently, United States deferred tax liabilities on
such earnings have not been recorded. Management believes that such United States taxes
would be largely offset by foreign net operating loss carry forwards in applicable foreign
jurisdictions.

New Accounting Pronouncements

Please refer to the
Notes to Consolidated Financial Statements for a discussion of recently issued accounting
standards.

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
affect the consolidated operating results of the Company.

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 2003 and 2002. The Company estimates that a hypothetical
10% adverse change in foreign currency exchange rates would not affect the
consolidated operating results of the Company by a material amount.

25

Item 8.        Financial Statements
and Supplementary Data.

Report of Independent Auditors

Board of Directors and Shareholders
Bioanalytical Systems, Inc.

We have
audited the accompanying consolidated balance sheets of Bioanalytical Systems,
Inc. as of September 30, 2003 and 2002, and the related consolidated statements
of income, shareholders equity and cash flows for each of the three 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 auditing standards generally accepted in the
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 2002, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 2003 in conformity with accounting principles generally accepted
in the United States.

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, except for the last paragraph of the Senior Debt section of Note 7, as to which the date is January 8, 2004.

26

Consolidated Balance Sheets

|                                                                                        | September 30,
|--------------------------------------------------------------------------------------- | -------------
|
|Assets                                                                                  |              
|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, less accumulated amortization of $360,167 in 2003 and 2002                    |              
|Intangible assets, net of accumulated amortization of $116,253                          |              
|Debt issue costs                                                                        |              
|Other assets                                                                            |              
|                                                                                        |              
|Total assets                                                                            |              
|                                                                                        |              
|Liabilities and Shareholders' Equity                                                    |              
|Current liabilities:                                                                    |              
|Accounts payable                                                                        |              
|Income taxes payable                                                                    |              
|Accrued expenses                                                                        |              
|Customer advances                                                                       |              
|Revolving line of credit                                                                |              
|Current portion of capital lease obligations                                            |              
|Current portion of long-term debt, including $509,670 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 $854,660 to related parties, less current portion |              
|Deferred income taxes                                                                   |              
|Shareholders' equity:                                                                   |              
|Preferred Shares:                                                                       |              
|Authorized shares - 1,000,000                                                           |              
|Issued and outstanding shares - none                                                    |              
|Common shares, no par value:                                                            |              
|Authorized shares - 19,000,000                                                          |              
|Issued and outstanding shares - 4,831,460 in 2003                                       |              
|and 4,578,516 in 2002                                                                   |              
|Additional paid-in capital                                                              |              
|Retained earnings                                                                       |              
|Accumulated other comprehensive loss                                                    |              
|                                                                                        |              
|Total shareholders' equity                                                              |              
|                                                                                        |              
|Total liabilities and shareholders' equity                                              |              
|                                                                                        |              

See accompanying notes.

27

Consolidated Statements of Income

|                                              | Year ended September 30,
|--------------------------------------------- | ------------------------
|
|Service revenue                               |                         
|Product revenue                               |                         
|                                              |                         
|Total revenue                                 |                         
|                                             
|Cost of service revenue                       |                         
|Cost of product revenue                       |                         
|                                              |                         
|Total cost of revenue                         |                         
|                                              |                         
|Gross profit                                  |                         
|Operating expenses:                           |                         
|Selling                                       |                         
|Research and development                      |                         
|General and administrative                    |                         
|                                              |                         
|Total operating expenses                      |                         
|                                              |                         
|Operating income                              |                         
|                                             
|Interest income                               |                         
|Interest expense                              |                         
|Other income                                  |                         
|Gain (loss) on sale of property and equipment |                         
|                                              |                         
|Income before income taxes                    |                         
|Income taxes                                  |                         
|                                              |                         
|Net income                                    |                         
|                                              |                         
|Net income per share                          |                         
|Basic                                         |                         
|Diluted                                       |                         
|                                             
|Weighted average common shares outstanding    |                         
|Basic                                         |                         
|Diluted                                       |                         

See accompanying notes.

28

Consolidated Statements of Shareholders Equity

|                               | PreferredShares |  | CommonShares |     | AdditionalPaid-inCapital |   | RetainedEarnings |  | AccumulatedOtherComprehensiveLoss |            | TotalShareholders' Equity
|------------------------------ | --------------- |  | ------------ | --- | ------------------------ | - | ---------------- |  | --------------------------------- | ---------- | -------------------------
|
|                              
|Balance at September 30, 2000  |                 |  | $            | --- |                          | $ | 1,010,690        |  | $                                 | 10,496,505 |                          
|Comprehensive income (loss)    |                 | 
|Net income                     |                 |  |              | --- |                          |   | ---              |  |                                   | ---        |                          
|Other comprehensive loss:      |                 | 
|Foreign currency               |                 | 
|translation                    |                 | 
|adjustments                    |                 |  |              | --- |                          |   | ---              |  |                                   | ---        |                          
|                               |                 |  |              |     |                          |   |                 
|Total comprehensive income     |                 |  |              |     |                          |   |                  |  |                                   |            |                          
|                              
|Exercise of stock options      |                 |  |              | --- |                          |   | 1,500            |  |                                   | 9,695      |                          
|                               |                 |  |              |     |                          |   |                  |  |                                   |            |                          
|                              
|Balance at September 30, 2001  |                 |  |              | --- |                          |   | 1,012,190        |  |                                   | 10,506,200 |                          
|                              
|                               |                 |  |              |     |                          |  
|Comprehensive income (loss)    |                 | 
|Net income                     |                 |  |              | --- |                          |   | ---              |  |                                   | ---        |                          
|Other comprehensive loss:      |                 | 
|Foreign currency               |                 | 
|translation                    |                 | 
|adjustments                    |                 |  |              | --- |                          |   | ---              |  |                                   | ---        |                          
|                               |                 |  |              |     |                          |   |                 
|                              
|Total comprehensive income     |                 |  |              |     |                          |   |                  |  |                                   |            |                          
|                               |                 |  |              |     |                          |  
|                              
|Exercise of stock options      |                 |  |              | --- |                          |   | 2,016            |  |                                   | 14,639     |                          
|                               |                 |  |              |     |                          |   |                  |  |                                   |            |                          
|                              
|Balance at September 30, 2002  |                 |  |              | --- |                          |   | 1,014,206        |  |                                   | 10,520,839 |                          
|                              
|                               |                 |  |              |     |                          |  
|Comprehensive income (loss)    |                 | 
|Net income                     |                 |  |              | --- |                          |   | ---              |  |                                   | ---        |                          
|Other comprehensive loss:      |                 | 
|Foreign currency               |                 | 
|translation                    |                 | 
|adjustments                    |                 |  |              | --- |                          |   | ---              |  |                                   | ---        |                          
|                               |                 |  |              |     |                          |   |                 
|Total comprehensive income     |                 |  |              |     |                          |   |                  |  |                                   |            |                          
|                              
|                               |                 |  |              |     |                          |  
|Shares issued for acquisitions |                 |  |              | --- |                          |   | 148,621          |  |                                   | 567,512    |                          
|                              
|Exercise of stock options      |                 |  |              | --- |                          |   | 5,336            |  |                                   | 33,444     |                          
|                               |                 |  |              |     |                          |   |                  |  |                                   |            |                          
|                              
|Balance at September 30, 2003  |                 |  | $            | --- |                          | $ | 1,168,163        |  | $                                 | 11,121,795 |                          
|                               |                 |  |              |     |                          |   |                  |  |                                   |            |                          
|                               |                 |  |              |     |                          |  

See accompanying notes.

29

Consolidated Statements of Cash Flows

|                                                                                  | Year ended September 30,
|--------------------------------------------------------------------------------- | ------------------------
|
|                                                                                 
|Operating activities                                                              |                         
|Net income                                                                        |                         
|Adjustments to reconcile net income to net                                        |                         
|cash provided by operating activities:                                            |                         
|Depreciation and amortization                                                     |                         
|(Gain) loss on sale of property and equipment                                     |                         
|Deferred income taxes                                                             |                         
|Changes in operating assets and liabilities:                                      |                         
|Accounts receivable                                                               |                         
|Inventories                                                                       |                         
|Prepaid expenses and other assets                                                 |                         
|Accounts payable                                                                  |                         
|Income taxes payable                                                              |                         
|Accrued expenses                                                                  |                         
|Customer advances                                                                 |                         
|                                                                                  |                         
|Net cash provided by operating activities                                         |                         
|                                                                                 
|Investing activities                                                              |                         
|Capital expenditures                                                              |                         
|Proceeds from sale of property and equipment                                      |                         
|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                 |                         
|                                                                                  |                         
|Net cash used by investing activities                                             |                         
|                                                                                 
|Financing activities                                                              |                         
|Borrowings of long-term debt                                                      |                         
|Payments of long-term debt                                                        |                         
|Borrowings on line of credit                                                      |                         
|Payments on line of credit                                                        |                         
|Borrowings on construction line of credit                                         |                         
|Payments on capital lease obligations                                             |                         
|Payments of debt issue costs                                                      |                         
|Payments on subordinated notes                                                    |                         
|Net proceeds from the exercise of stock options                                   |                         
|                                                                                  |                         
|Net cash provided (used) by financing activities                                  |                         
|                                                                                  |                         
|                                                                                 
|Effect of exchange rate changes                                                   |                         
|                                                                                  |                         
|Net increase (decrease) in cash and cash equivalents                              |                         
|Cash and cash equivalents at beginning of year                                    |                         
|                                                                                  |                         
|Cash and cash equivalents at end of year                                          |                         
|                                                                                  |                         

See accompanying notes.

30

Bioanalytical Systems, Inc.
Notes to Consolidated Financial Statements
September 30, 2003

1.        Significant Accounting Policies

Nature of Business

Bioanalytical
Systems, Inc. and its subsidiaries (the Company or the
Company) engage in laboratory services and consulting related to
pharmaceutical development. The Company also manufactures scientific instruments
for medical research. The Company also sells its equipment and software for use
in industrial, governmental and academic laboratories. The Companys
customers are located throughout the world.

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.

Revenue Recognition

The majority of
the Companys 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. 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.

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 instruments utilized for scientific research.
Revenue from products 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. The products business also generates small consulting contracts
for applications support and service contracts for software updates,
preventative maintenance and repairs.

Cash Equivalents

The Company considers
all highly liquid investments with an original maturity of three months or less when
purchased to be cash equivalents.

31

Financial Instruments

Financial instruments
that subject the Company to credit risk consist principally of trade accounts
receivable. The Company performs periodic credit evaluations of its
customers financial conditions and generally does not require collateral
on trade accounts receivable. Management does not anticipate any significant
losses and, accordingly, trade receivables in the accompanying balance sheet are
recorded at their outstanding unpaid balances. Historical losses have not been
significant.

The Companys 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. The Companys bank debt has primarily variable interest rates, thus their
carrying amounts approximate fair value. The carrying value of the Companys fixed
rate debt also approximates its fair value.

Inventories

Inventories are stated
at the lower of cost or market. Cost is determined using the last-in, first-out
(LIFO) method.

Impairment of Long-Lived Assets

The Company reviews
long-lived assets and certain identifiable intangibles held and used for possible
impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In evaluating the fair value and future benefits of
its intangible assets, management performs an analysis of the anticipated undiscounted
future net cash flows of the individual assets over the remaining amortization period. The
Company recognizes an impairment loss if the carrying value of the asset exceeds the
expected future cash flows.

Property and Equipment

Property and equipment
are recorded at cost, including interest capitalized in connection with the construction
of major facilities. Depreciation, including amortization on capital leases, is computed
using the straight-line method over the estimated useful lives of 3 through 40 years.
Expenditures for maintenance and repairs are charged to expense as incurred.

Goodwill and Intangible Assets

Goodwill is stated at
cost. Prior to October 1, 2002, goodwill was amortized 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) approved the issuance of Statement of Financial Accounting
Standards (SFAS) 142, Goodwill and Other Intangible Assets, which
establishes new accounting and reporting requirements for goodwill and other intangible
assets. The new standard requires that 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.

32

The Company applied the
provisions of SFAS 142 beginning on October 1, 2002. The Company has completed a
fair value based impairment test, on its goodwill acquired before July 30, 2001,
as of October 1, 2002 and then again during the fourth quarter of 2003. The
test indicated that the fair value of the goodwill is equivalent to or greater
than the recorded value as of such dates, therefore, no adjustment has been made
to the carrying value of goodwill acquired before July 1, 2001 in the
Companys financial statements. In connection with adopting SFAS 142, for
goodwill acquired prior to July 1, 2001, the Company determined that no
intangible assets exist that are required to be accounted for apart from
goodwill. The carrying amount of goodwill is as follows:

|Goodwill, net of accumulated amortization at
    September 30, 2002 |  |  | $ | 883,628 | 
|------------------------------------------------------------------- |  |  | - | ------- | 
|Additions resulting from acquisitions                               |  |  |   | 100,255 | 
|                                                                    |  | 
|Goodwill, net of accumulated amortization at
   September 30, 2003  |  |  | $ | 983,883 | 
|                                                                    |  | 

The components of the
Companys intangible assets subject to amortization are as follows:

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

The Company has
indefinite-lived intangible assets of $1,647,025 assigned to the acquired regulated
facilities/Food and Drug Administration (FDA) compliant laboratory sites as of
September 30, 2003.

Amortization expense
for intangible assets during the fiscal year ended September 30, 2003 was $116,253. The
following table provides information regarding estimated amortization expense for each of
the following years ended September 30:

|2004 |  |  | $ | 249,414   | 
|---- |  |  | - | --------- | 
|2005 |  |  |   | 249,414   | 
|2006 |  |  |   | 249,414   | 
|2007 |  |  |   | 249,414   | 
|2008 |  |  |   | 133,161   | 
|     |  | 
|     |  |  | $ | 1,130,817 | 
|     |  | 

33

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

|                              | Year Ended September 30,
|----------------------------- | ------------------------
|
|Reported net income           |                         
|Goodwill amortization         |                         
|                              |                         
|Adjusted net income           |                         
|                              |                         
|                             
|Basic net income per share    |                         
|Reported net income per share |                         
|Add:  Goodwill amortization   |                         
|                              |                         
|Adjusted net income per share |                         
|                              |                         
|Diluted net income per share  |                         
|Reported net income per share |                         
|Add:  Goodwill amortization   |                         
|                              |                         
|Adjusted net income per share |                         
|                              |                         

Advertising Expense

The Company expenses advertising costs as incurred. Advertising expense was
$237,337, $266,225 and $195,833 for 2003, 2002 and 2001,
respectively.

Stock Based Compensation

In accordance
with SFAS No. 123, Accounting for Stock-Based Compensation, the
Company uses the intrinsic value method to account for stock options, consistent
with the existing rules established by APB Opinion No. 25, Accounting for
Stock Issued to Employees.

Disclosure of
pro forma information regarding net income and earnings per share is required by
SFAS No. 123 as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994, under the fair value method as defined
by that Statement. The fair value for options granted by the Company was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions:

|                                         | 
|---------------------------------------- | 
|
|Risk-free interest rate                  | 
|Dividend yield                           | 
|Volatility factor of the expected market | 
|price of the Company's common stock      | 
|Expected life of the options (years)     | 

34

The Black-Scholes
option valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including expected
stock price volatility. Because the Companys employee stock options have
characteristics significantly different from those of traded options, and because changes
in the subjective input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro
forma disclosures, the estimated fair value of the options are 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:

|                               | 2003 |  | 2002 |        | 2001
|------------------------------ | ---- |  | ---- | ------ | ----
|Pro forma net income           |      |  | $    | 64,710 |     
|Pro forma net income per share |      |  | $    | 0.01   |     

New Accounting Pronouncements

Effective January 1,
2003, the Company adopted FASB Interpretation No. (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 elaborates on the disclosures that must be made by a
guarantor in its interim and annual financial statements about its obligations under
certain guarantees. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions of FIN 45 apply
on a prospective basis to certain guarantees and indemnifications issued or modified after
December 31, 2002. Accordingly, any contractual guarantees or indemnifications the Company issues
or modifies subsequent to December 31, 2002 will be evaluated and, if required, a
liability for the fair value of the obligation undertaken will be recognized. The adoption
of FIN 45 did not have a material effect on the Companys financial position or results of
operations during 2003.

In January 2003, the
FASB issued FIN 46, Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin (ARB) No. 51. FIN 46 requires a variable
interest entity (VIE) to be consolidated by the primary beneficiary of the
entity under certain circumstances. FIN 46 is effective for all new VIEs created or
acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003,
the provisions of FIN 46 must be applied for the first interim or annual period beginning
after December 15, 2003. Based on its preliminary review of its interests in other
entities, the Company does not expect that the adoption of FIN 46 will have a material impact its
financial position or results of operations.

35

In May 2003,
the FASB issued SFAS 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity. This statement
requires that certain financial instruments that, under previous guidance,
issuers could account for as equity be classified as liabilities in statements
of financial position. Most of the guidance in SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS 150 has not and is not expected to have a
material impact on financial condition, results of operations, and cash flows of
the Company.

Use of Estimates

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

36

2.        Earnings per
Share

Basic earnings per
share is computed on the basis of the weighted average number of common shares
outstanding. Diluted earnings per share is computed on the basis of the weighted average
number of common and common equivalent shares outstanding. Common equivalent shares
include the dilutive effect of employee and director options to purchase common shares,
convertible preferred shares, and convertible subordinated debt, which are assumed to be
converted. The convertible subordinated debt was not dilutive.

The following table
reconciles both the numerator and the denominator of the basic earnings per share
computation to the numerator and the denominator of the diluted earnings per share from
continuing operations computation as of September 30:

|                              | 2003 |  | 2002 |           | 2001
|----------------------------- | ---- |  | ---- | --------- | ----
|
|Shares:                       |      |  |      |           |     
|Basic shares                  |      |  |      | 4,654,595 |     
|Effect of dilutive securities |      | 
|Options                       |      |  |      | 18,853    |     
|Convertible subordinated debt |      |  |      | ---       |     
|                              |      |  |      |           |     
|Diluted shares                |      |  |      | 4,673,448 |     
|                             
|Basic and diluted net income  |      |  | $    | 87,306    |     
|                             
|Basic EPS                     |      |  | $    | 0.02      |     
|Diluted EPS                   |      |  | $    | 0.02      |     

3.        Acquisitions

The Company acquired two
companies during the year ended September 30, 2003. Each of these acquisitions was
accounted for using the purchase method of accounting as required by Statement of
Financial Accounting Standards No. 141, Business Combinations. The purchase
price has been allocated to the estimated fair values of net assets acquired.

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 purchased all of the outstanding
shares of LCR for $1,998,847. The purchase price consisted of $198,847 in cash
and $1.8 million in 10% subordinated notes maturing on October 1, 2007. The
holders of the notes 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. The results of operations of LCR have been included
with those of the Company since the date of the acquisition. LCR has been renamed BASi
Northwest Laboratories, Inc.

37

The Company engaged an
independent valuation firm to determine the fair value of identifiable intangible assets
required to be accounted for apart from goodwill. The following table summarizes the fair
values of the assets acquired and liabilities assumed at the date of acquisition:

|Current assets         |  |  | $ | 638,527   |  
|---------------------- |  |  | - | --------- | -
|Property and equipment |  |  |   | 347,217   |  
|Intangible assets      |  |  |   | 1,251,000 |  
|Goodwill               |  |  |   | 43,303    |  
|                       |  | 
|Total assets acquired  |  |  |   | 2,280,047 |  
|                       |  | 
|                      
|Liabilities assumed    |  |  |   | (281,200  | )
|                       |  | 
|Net assets acquired    |  |  | $ | 1,998,847 |  
|                       |  | 

Of the $1,251,000 of
acquired other intangible assets, $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 lives of the acquired methodologies and
customer relationships to be 5 years and amortized using the straight-line method, and
determined that the acquired regulated facility/FDA compliant laboratory site is an
indefinite-lived intangible asset not subject to amortization.

PharmaKinetics Laboratories, Inc.

On May 26, 2003,
PharmaKinetics Laboratories, Inc. (PKLB) became a majority owned subsidiary
through the conversion of $791,000 in convertible notes receivable to 4,992,300 shares of
PKLB common stock, representing a 67% interest. On June 30, 2003, the Company completed its
acquisition of PKLB through the exchange of approximately 228,857 shares of the Company's common
stock valued at $1,178,614 for all of the outstanding common stock and Class B preferred
stock of PKLB, and the issuance of $4,000,000 of 6% convertible notes payable due 2008 for
all of PKLBs Class A redeemable preferred stock. These notes are convertible into
approximately 249,990 shares of the Company's common stock. The Company paid cash aggregating $1,505,886
representing acquisition costs and cash advances made to PKLB from June 2002 through May
2003.

PKLB was a publicly
traded company based in Baltimore, Maryland, and provides 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.

38

The purchase
price has been allocated based on the estimated fair values of the assets and
liabilities acquired. The purchase price has been preliminarily allocated as
follows and is subject to change:

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

Of the $1,643,095 in
preliminary value of the acquired intangible assets, $236,477 was assigned to
methodologies, $471,593 was assigned to customer relationships and $935,025 has
been assigned to the regulated facility/FDA compliant laboratory site. The
Company estimated the economic useful lives of the acquired methodologies and
customer relationships to be 5 years and amortized using the straight-line
method, and determined that the acquired regulated facility/FDA compliant
laboratory site is an indefinite-lived intangible asset not subject to
amortization.

The
Companys estimate of fair values and allocation of the purchase price is
preliminary and subject to change pending the final valuation, to be determined
with the assistance of the independent valuation firm the Company has engaged.
Accordingly, the carrying value of assets subject to amortization and their
related estimated economic useful lives may change.

Unaudited Pro Forma Results

Unaudited pro
forma results of operations after giving effect to certain adjustments resulting
from the 2003 acquisitions were as follows as if the business combinations had
occurred at the beginning of each period presented.

(In thousands, except per share data)

|                           | Year Ended September 30,
|-------------------------- | ------------------------
|
|Revenue                    |                         
|Net income (loss)          |                         
|Earnings (loss) per share: |                         
|Basic and diluted          |                         

39

4.        Assets
Held for Sale

In connection with the
purchase of PKLB, the Company acquired land and a building valued at
approximately $5.7 million, which approximates fair value. These assets are
recorded in the consolidated balance sheet in land and improvements and
buildings and improvements. The Companys bank debt covenants require the
sale of these assets as a condition of compliance. The Company intends to
dispose of these assets by December 31, 2004 and has listed the property with a
nationally recognized real estate firm.

5.        Inventories

Inventories at
September 30 consisted of the following:

|                  | 2003 |  | 2002
|----------------- | ---- |  | ----
|
|Raw materials     |      |  | $   
|Work in progress  |      |  |     
|Finished goods    |      |  |     
|                  |      |  |     
|                  |      |  |     
|Less LIFO reserve |      |  |     
|                  |      |  |     
|                  |      |  | $   
|                  |      |  |     

6.        Lease
Arrangements

The Company
has capital lease arrangements used to finance the acquisition of equipment
which conclude in 2004. Future minimum lease payments, based upon scheduled
payments under the lease arrangements, as of September 30, 2003, total $126,931.
Of this amount, $3,560 represents interest.

The total
amount of property and equipment capitalized under capital lease obligations as
of September 30, 2003 and 2002 was $1,917,625 and $2,776,645, respectively.
Accumulated amortization on capital leases at September 30, 2003 and 2002 was
$1,227,596 and $1,041,348, 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.

The Company leases
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 $591,580, $213,111 and $192,123 in 2003, 2002 and 2001,
respectively.

Future minimum lease
payments at September 30, 2003 are as follows:

|2004 |  |  | $ | 660,703   | 
|---- |  |  | - | --------- | 
|2005 |  |  |   | 529,354   | 
|2006 |  |  |   | 518,005   | 
|2007 |  |  |   | 59,712    | 
|     |  | 
|     |  |  | $ | 1,767,774 | 
|     |  | 

40

7.        Debt
Arrangements

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

|                                                                                                                                                                      | 2003 |  | 2002
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- |  | ----
|Mortgage note payable to a bank, payable in monthly principal installments of                                                                                         |      |  |     
|$22,542 plus interest, followed by a final payment for the unpaid principal                                                                                           |      | 
|amount of $2,727,502 due November 1, 2012. Interest is charged at the prime rate                                                                                      |      | 
|(4.0% at September 30, 2003).                                                                                                                                         |      |  | $   
|                                                                                                                                                                     
|Mortgage note payable to a bank, payable in monthly principal and interest                                                                                            |      | 
|installments of $16,712, followed by a final payment for the unpaid principal                                                                                         |      | 
|amount due May 1, 2008. Interest is charged at the prime rate (4.00% at                                                                                               |      | 
|September 30, 2003).                                                                                                                                                  |      |  |     
|                                                                                                                                                                      |      | 
|                                                                                                                                                                     
|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. Payable in a combination of common shares and cash at payee election. |      |  |     
|                                                                                                                                                                      |      | 
|                                                                                                                                                                     
|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)                                                                                                                                                                 |      |  |     
|                                                                                                                                                                      |      | 
|                                                                                                                                                                     
|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.                                                                                                         |      |  |     
|                                                                                                                                                                      |      | 
|                                                                                                                                                                     
|Mortgage notes payable to bank repaid with new borrowings on October 29, 2002.                                                                                        |      | 
|                                                                                                                                                                      |      |  |     
|                                                                                                                                                                      |      |  |     
|                                                                                                                                                                      |      |  |     
|                                                                                                                                                                     
|Less current portion                                                                                                                                                  |      |  |     
|                                                                                                                                                                      |      |  |     
|                                                                                                                                                                      |      |  | $   
|                                                                                                                                                                      |      |  |     

41

The following
table summarizes the Companys principal payment obligations for the years
ending September 30:

|2004       |  |  |   | 1,131,904  | 
|---------- |  |  | - | ---------- | 
|2005       |  |  |   | 749,601    | 
|2006       |  |  |   | 754,521    | 
|2007       |  |  |   | 759,645    | 
|2008       |  |  |   | 6,063,514  | 
|Thereafter |  |  |   | 3,809,519  | 
|           |  | 
|           |  |  | $ | 13,268,704 | 
|           |  | 

Cash interest payments
of $599,317, $250,615 and $329,544 were made in 2003, 2002 and 2001, respectively. Cash
interest payments for 2003 included interest of $37,302 which was capitalized. These
amounts included interest required to be paid on a portion of the undistributed earnings
of a subsidiary, which qualifies as a domestic international sales corporation.

Senior Debt

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. 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 new credit agreements contain cross-default provisions. Details of each
debt issue are discussed below.

The Companys
revolving line of credit limits outstanding borrowings to the borrowing base as defined in
the agreement, to a maximum available amount of $6 million. As of September 30, 2003, the
outstanding balance on this line of credit was $2,387,846. 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, 2003, interest on the entire
outstanding balance was based on the prime rate of 4.00%. 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 October 29, 2002,
the Company obtained a $2,250,000 construction loan with a bank which expires November 1,
2012. The loan requires interest payments only until completion of the project in West
Lafayette, Indiana. Interest is charged at the prime rate. The outstanding balance on this
construction loan at September 30, 2003 was $1,675,753.

To obtain the
foregoing new credit agreements, the Company entered into an agreement with
Periculum Capital Company, LLC (Periculum). Under the terms of the agreement,
the Company paid $300,000 in fees to Periculum upon closing of the refinancing.
A principal of Periculum is a shareholder of the Company.

The Company was in violation of one of the credit agreement's financial
covenants for the fiscal year ended September 30, 2003. Subsequently, the
related banks waived the violation. The Company has projected that it will also
be in violation of one of the financial covenants for the twelve months ended
December 31, 2003. On January 8, 2004, the banks waived compliance with this
financial covenant for the twelve months ended December 31, 2003 and have
amended certain of the financial covenants through September 30,
2004.

42

Subordinated Debt

In connection
with the acquisition of LCR (Note 3), the Company issued subordinated notes of
$1,800,000. The Company made principal payments of $251,730 and interest
payments of $100,346 on September 30, 2003. These notes are subordinated to
the Companys senior debt.

In connection
with the acquisition of PKLB (Note 3) ,the Company issued $4,000,000 of 6%
convertible notes payable, including $500,000 payable to a current director of
the Company, due January 1, 2008. These notes are non-interest bearing until
June 1, 2004. The Company is 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 to common stock of the Company at a conversion rate of $16 per common share.
These notes are convertible into approximately 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, 2003, the Company has not made notice to any holders of these notes.
These notes are subordinated to the Companys senior debt.

8.        Income Taxes

Significant components
of the Companys deferred tax liabilities and assets as of September 30 are as
follows:

|                                | 2003 |  | 2002
|------------------------------- | ---- |  | ----
|Deferred tax liabilities:       |      |  |     
|Tax over book depreciation      |      |  | $   
|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    |      |  | $   
|                                |      |  |     

43

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

|               | 2003 |  | 2002 |         | 2001
|-------------- | ---- |  | ---- | ------- | ----
|Current:       |      |  |      |         |     
|Federal        |      |  | $    | 163,820 |     
|State          |      |  |      | 117,400 |     
|Foreign        |      |  |      | (3,820  | )   
|               |      |  |      |         |     
|Total current  |      |  |      | 277,400 |     
|Deferred:      |      | 
|Federal        |      |  |      | 163,288 |     
|State          |      |  |      | 42,583  |     
|               |      |  |      |         |     
|Total deferred |      |  |      | 205,871 |     
|               |      |  |      |         |     
|               |      |  | $    | 483,271 |     
|               |      |  |      |         |     

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

|                                  | 2003 | 2002 | 2001
|--------------------------------- | ---- | ---- | ----
|Statutory federal income tax rate |      |      |     
|Increases (decreases):            |      |     
|Amortization of goodwill and      |      |     
|other nondeductible expenses      |      |      |     
|Benefit of foreign sales          |      |     
|corporation, net                  |      |      |     
|State income taxes, net of        |      |     
|federal tax benefit               |      |      |     
|Research and development credit   |      |      |     
|Nondeductible foreign losses      |      |      |     
|Other                             |      |      |     
|                                  |      |     
|                                  |      |      |     
|                                  |      |     

In fiscal 2003, 2002
and 2001, the Companys foreign operations generated income (loss) before income
taxes of $(415,977), $621,699 and $(359,297), respectively.

Payments made in 2003,
2002 and 2001 for income taxes amounted to $351,589, $400,600 and $1,095,000,
respectively.

The Company
has foreign net operating loss carryforwards of $1,321,794 that have an
indefinite life under current UK tax law.

44

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 employees of
the Company. 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.

A summary of
the Companys stock option activity and related information for the years
ended September 30 is as follows:

|                  | 2003 | 2002 | 2001
|----------------- | ---- | ---- | ----
|
|Outstanding--     |      |      |     
|beginning of year |      |      |     
|Exercised         |      |      |     
|Granted           |      |      |     
|Terminated        |      |      |     
|                  |      |      |     
|Outstanding--     |      |     
|end of year       |      |      |     
|                  |      |      |     

In 2003, the Company
granted 27,000 shares under the Outside Director Stock Option Plan. The weighted average
fair value of options granted in 2003 was $2.80. These options become exercisable in two
equal installments at six months and one year from the grant date.

The following applies
to options outstanding at September 30, 2003:

|Range ofExercisePrices | NumberOutstanding atSeptember 30,2003 | WeightedAverageRemainingContractualLife (Years) | WeightedAverageExercisePrice | NumberExercisable atSeptember 30,2003 | WeightedAverageExercisePrice
|---------------------- | ------------------------------------- | ----------------------------------------------- | ---------------------------- | ------------------------------------- | ----------------------------
|$1.51-2.10             | 7,027                                 | 0.28                                            | $2.10                        | 7,027                                 | $2.10                       
|$2.11-8.00             | 99,500                                | 6.17                                            | $4.88                        | 46,625                                | $5.88                       
|                       | 106,527                               |                                                 |                              | 53,652                               

45

10.        Retirement Plan

The Company
established 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 2003, 2002, and 2001. Contribution expense was $402,148,
$369,023 and $324,674 in 2003, 2002 and 2001, respectively.

11.        Segment Information

The Company
operates in two principal segments  research services and research
products. The Companys services unit provides research and development
support on a contract basis directly to pharmaceutical companies. The
Companys analytical products unit provides liquid chromatography,
electrochemical and physiological monitoring products to pharmaceutical
companies, universities, government research centers and medical research
institutions. The Company evaluates performance and allocates resources based on
these segments. Certain assets of the Company are not directly accounted for
separately 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. Management
does not allocate such items to its principal segments because they are not used
to evaluate their financial position. The accounting policies of theses segments
are the same as those described in the summary of significant accounting
policies.

Operating Segments:

|                           | Year Ended September 30,
|-------------------------- | ------------------------
|
|
|                          
|Revenue                    |                         
|Service                    |                         
|Product                    |                         
|                           |                         
|Total                      |                         
|                           |                         
|                           |                         
|Operating Income           |                         
|Service                    |                         
|Product                    |                         
|                           |                         
|Total operating income     |                         
|Corporate expenses         |                         
|                           |                         
|Income before income taxes |                         
|                           |                         

46

Operating Segments (continued):

|                              | Year Ended September 30,
|----------------------------- | ------------------------
|
|
|                             
|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                         |                         
|                              |                         

47

Geographic Information:

|                             | Year Ended September 30,
|---------------------------- | ------------------------
|
|
|                            
|Sales to external customers: |                         
|North America                |                         
|Pacific Rim                  |                         
|Europe                       |                         
|Other                        |                         
|                             |                         
|Total                        |                         
|                             |                         
|Long-lived assets:           |                         
|North America                |                         
|Europe                       |                         
|                             |                         
|Total                        |                         
|                             |                         

Major Customers:

During 2003
Pfizer and Pharmacia, the Companys two largest clients in 2002 and 2001,
merged. Treated as a single entity in 2003, 2002 and 2001, Pfizer would have
accounted for approximately 16.0%, 28.3% and 30.6%, respectively, of the
Companys total revenues and 17.2% and 22.0% of total trade accounts
receivable at September 30, 2003 and 2002, respectively.

12.        Related Party
Transactions

As of September 30,
2003, the Company has two notes payable totaling $850,000 to a current director
of the Company and 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. On December 31, 2003, the Company issued
a $350,000 8% new convertible note payable ("New Note"), in exchange for a
$350,000 outstanding convertible note payable ("Old Note") dated November 22,
2002, to a former director of PKLB and current director of the Company. 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).

At September
30, 2003, the Company has a subordinated note payable of $474,682 to a former
shareholder of LCR and current general manager of BASi Northwest. This note was
issued in connection with the acquisition of LCR (Note 7).

48

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

None.

Item 9A.        Controls and
Procedures.

Based on their most recent evaluation, which was completed as of September 30,
2003, the Companys Chief Executive Officer and interim Chief Financial
Officer believe that, except as described below, the Companys disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) were effective as of September 30, 2003 in timely alerting the
Companys management to material information required to be included in
this Form 10-K and other Exchange Act filings. Upon completing their review, the
Chief Executive Officer and the interim Chief Financial concluded that the
Company was not producing final versions of its Exchange Act reports
sufficiently early to allow the Chief Executive Officer to thoroughly review
them. Since September 30, 2003, the Company has shifted responsibility for the
preparation of the Exchange Act reports to different personnel, has formed a
Disclosure Committee to review its Exchange Act reports, has adopted a more
structured timetable for completing the required disclosure and has obtained
more extensive involvement by the Chief Executive Officer in the preparation of
the reports.

Except as indicated below, 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, and there were no
significant deficiencies or material weaknesses which required corrective
action.

The Companys independent auditors have informed the audit committee that a
material weakness has been identified in the Company's internal control 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.

The Company's
controller resigned on July 31, 2003, although she continued to work on a
part-time basis through November 1, 2003, and the Chief Financial Officer
resigned on October 31, 2003. Since these resignations, the Company has
appointed an interim Chief Financial Officer and the Company is in the process
of recruiting to fill these positions. The Company has made interim arrangements
with a consulting firm to provide the additional necessary support needed while
the search for a new controller and a new Chief Financial Officer
continues.

# 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, 2003. 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. | 59  | Chairman of the Board;                
|                          |     | President; Chief Executive Officer    
|Ronald E. Shoup, Ph.D.    | 52  | Chief Operating Officer, BASi Contract
|                          |     | Research Services; Director           
|Candice B. Kissinger      | 52  | Senior Vice President, Marketing;     
|                          |     | Secretary and Director                
|William E. Baitinger      | 69  | Director                              
|Leslie B. Daniels         | 56  | Director                              
|John A. Kraeutler         | 55  | Director [Resigned November 14, 2003] 
|W. Leigh Thompson         | 64  | 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.

49

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.

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.

John A.
Kraeutler has served as a director of the Company since January 1997. Mr. Kraeutler
has been President and Chief Operating Officer of Meridian Bioscience, Inc. since August
1992 and is also a director. Prior to joining Meridian Bioscience, Inc., Mr. Kraeutler
held a progression of technical, marketing and general management positions with a number
of healthcare companies, including Carter-Wallace, Becton Dickinson and Organon (Akzo
Nobel). Mr. Kraeutler has Bachelor of Science degree in Biology from Fairleigh Dickinson
University and a Master of Business Administration in Marketing and a Master of Science
degree in Biology from Seton Hall University. Mr. Kraeutler resigned from the Board of
Directors effective November 14, 2003.

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 of La Jolla Pharmaceutical Company, Diabetogen Bioscience,
Inc., Medarex, Inc., Guilford Pharmaceuticals, Inspire Pharmaceuticals, Inc.,
Sontra Medical Corp., and DepoMed.

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 Leslie B. Daniels is an audit committee financial expert (as
defined by Item 401(h) of Regulation S-K). Leslie B. Daniels 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.

50

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.

Not applicable,
pursuant to SEC Release 33-8183.

[Remainder of page
intentionally left blank.]

51

# 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, 2003 and 2002.
| |  | --------------------------------------------------------------

| |  | Consolidated Statements of Income for the Years Ended September 30, 2003, 2002
and 2001.
| |  | ----------------------------------------------------------------------------------------

| |  | Consolidated Statements of Shareholders Equity for the Years Ended
September 30, 2003, 2002 and 2001.
| |  | ------------------------------------------------------------------------------------------------------

| |  | Consolidated Statements of Cash Flows for the Years Ended September 30, 2003,
2002 and 2001.
| |  | --------------------------------------------------------------------------------------------

| |  | 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.    Form 8-K dated July 3, 2003
relating to other events under Item 5.

(c)        
Exhibits.    See Index to Exhibits.

52

# 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, 2004 | BIOANALYTICAL SYSTEMS, INC.
  (Registrant)
By:  /s/  Peter T. Kissinger
Peter T. Kissinger
President, Chairman and Chief Executive Officer
By:  /s/  Michael P. Silvon
Michael P. Silvon
Chief Financial Officer (Interim)
Vice President, Planning & Development
|----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

53

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, 2004
|                                         
|                                         
|/s/  Michael P. SilvonMichael P. Silvon   | Chief Financial Officer (Interim)VP Planning & Development(Principal Financial and Accounting Officer) | January 13, 2004
|                                         
|                                         
|/s/  William E. Baitinger                 | Director                                                                                               | January 13, 2004
|William E. Baitinger                     
|                                         
|                                         
|/s/  Leslie B. Daniels                    | Director                                                                                               | January 13, 2004
|Leslie B. Daniels                        
|                                         
|                                         
|/s/  Candice B. Kissinger                 | Director                                                                                               | January 13, 2004
|Candice B. Kissinger                     
|                                         
|                                         
|/s/  Ronald E. Shoup                      | Director                                                                                               | January 13, 2004
|Ronald E. Shoup                          
|                                         
|                                         
|/s/  W. Leigh Thompson                    | Director                                                                                               | January 13, 2004
|W. Leigh Thompson                        
|                                         
|                                         

54

INDEX TO EXHIBITS

|NumberAssigned InRegulation S-KItem 601 |  | Description of Exhibits | SequentialNumberingSystem PageNumber ofExhibit
|--------------------------------------- |  | ----------------------- | ----------------------------------------------

|(3) | 3.1 | Second Amended and Restated Articles of Incorporation of XXX 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 8K 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 Appendix 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). | 
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 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). | 
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

55

|NumberAssigned InRegulation S-KItem 601 |  | Description of Exhibits | SequentialNumberingSystem PageNumber ofExhibit
|--------------------------------------- |  | ----------------------- | ----------------------------------------------

| | 10.8 | Credit Agreement by and between Bioanalytical Systems, Inc., and The Provident
Bank, dated October 29, 2002 (incorporated by reference to Exhibit 10.10 of Form
10-K for the fiscal year ended September 30, 2002). | 
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.9 | General Security Agreement by and between Bioanalytical Systems, Inc. and The
Provident Bank, dated October 29, 2002 (incorporated by reference to Exhibit
10.11 of Form 10-K for the fiscal year ended September 30,
2002). | 
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 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 | Promissory Note by and between Bioanalytical Systems, Inc. and The Provident
Bank, dated October 29, 2002 related to loan in the amount of $6,000,000
(incorporated by reference to Exhibit 10.14 of Form 10-K for the fiscal year
ended September 30, 2002). | 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.13 | First Amendment to Credit Agreement by and between Bioanalytical Systems, Inc.
and The Provident Bank dated May 30, 2003 (incorporated by reference to Exhibit
10.1 of Form 10-Q for the quarter ended June 30, 2003). | 
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.14 | Second Amendment to Credit Agreement by and between Bioanalytical Systems, Inc.
and The Provident Bank dated November 17, 2003. | 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.15 | Third Amendment to Credit Agreement by and between Bioanalytical Systems, Inc.
and The Provident Bank dated January 8, 2004. | 
| | ----- | ---------------------------------------------------------------------------------------------------------------------------- | 

| | 10.16 | 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). | 
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.17 | 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). | 
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.18 | 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). | 
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.19 | 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). | 
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.20 | 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). | 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

|NumberAssigned InRegulation S-KItem 601 |  | Description of Exhibits | SequentialNumberingSystem PageNumber ofExhibit
|--------------------------------------- |  | ----------------------- | ----------------------------------------------

| | 10.21 | Secured Convertible Revolving Note, dated November 14, 2002, payable by
PharmaKinetics Laboratories, Inc. to Bioanalytical Systems, Inc. in the original
principal amount of up to $925,000 (incorporated by reference to Exhibit 10.3 to
Form 8-K filed November 21, 2002). | 
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 10.22 | Letter Agreement by and between Bioanalytical Systems, Inc. and Michael P.
Silvon dated March 12, 1997. | 
| | ----- | ------------------------------------------------------------------------------------------------------- | 

|(13) |  | 2003 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 Auditors | 
|---- | ---- | ------------------------------- | 

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

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

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

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

56