EXHIBIT 13.1 - ANNUAL REPORT


                                [GRAPHIC OMITTED]

                  GREETING THE FUTURE WITH PURPOSE AND OPTIMISM




                                      BAS
                               2001 ANNUAL REPORT

<PAGE>

<TABLE>
<CAPTION>
                               SELECTED CONSOLIDATED FINANCIAL DATA


                                                           YEAR ENDED SEPTEMBER 30,
                                            -----------------------------------------------------
                                                2001       2000       1999       1998        1997
                                            -----------------------------------------------------
                                                  (in thousands, except per share data)
<S>                                         <C>        <C>         <C>        <C>         <C>
STATEMENT OF OPERATIONS DATA:
   Service revenue                          $ 15,202   $ 10,999    $ 9,993    $ 7,609     $ 4,991
   Product revenue                            10,073      8,224      9,858     10,616       9,932
     Total revenue                            25,275     19,223     19,851     18,225      14,923
   Cost of service revenue                     9,660      9,245      6,499      4,598       2,986
   Cost of product revenue                     3,495      2,974      3,943      3,911       3,334
      Total cost of revenue                   13,155     12,219     10,442      8,509       6,320
   Gross profit                               12,120      7,004      9,409      9,716       8,603
   Operating expenses:
   Selling                                     3,204      3,400      3,943      4,524       4,225
   Research and development                    1,611      1,806      1,955      2,165       1,568
   General and administrative                  3,815      2,990      2,550      2,336       1,638
      Total operating expenses                 8,630      8,196      8,448      9,025       7,431
   Operating income (loss)                     3,490     (1,192)       961        691       1,172
   Other income (expense), net                  (383)      (621)      (114)       (25)        (75)
   Income (loss) before income taxes           3,107     (1,813)       847        666       1,097
   Income taxes (benefit)                      1,340       (431)       277        254         413
   Net income (loss)                        $  1,767   $ (1,382)   $   570    $   412    $    684
   Net income (loss) available to
      common shareholders                   $  1,767   $ (1,382)   $   570    $   412    $    657
   Net income (loss) per Common Share
      Basic                                 $    .39   $   (.30)   $   .13    $   .10    $    .30
      Diluted                               $    .38   $   (.30)   $   .12    $   .09    $    .21
   Weighted average Common Shares
      outstanding
      Basic                                    4,565      4,550      4,506      4,117       2,221
      Diluted                                  4,600      4,550      4,676      4,403       3,101


                                                                 SEPTEMBER 30,
                                            -----------------------------------------------------
                                                2001       2000       1999       1998        1997
                                            -----------------------------------------------------
                                                                 (in thousands)
BALANCE SHEET DATA:
 Working capital                            $  2,535   $    931    $ 4,275    $ 3,286    $  2,493
 Property and equipment, net                  18,922     18,913     17,355     14,551      10,035
 Total assets                                 27,977     26,897     26,321     22,280      15,931
 Long-term debt, less
    current portion                            3,144      3,638      4,112      1,124       5,045
 Convertible Preferred Shares                    ---        ---        ---        ---       1,231
 Shareholders' equity                         17,830     16,062     17,421     16,844       5,651

<FN>
The above is selected audited consolidated  financial data of the Company for the five years ended
September  30, 2001.  The data should be read in  conjunction  with  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations" found on page ten and the consolidated
financial statements of Bioanalytical Systems, Inc. and notes containedin this report.
</FN>
</TABLE>

<PAGE>

                               [GRAPHIC OMITTED]


                                 CELEBRATING OUR
                        DIVERSITY REJOICING IN OUR UNITY
                            GREETING THE FUTURE WITH
                              PURPOSE AND OPTIMISM

<PAGE>
FROM THE PRESIDENTS DESK

Fiscal 2001 was a benchmark  year for BAS. Many of the things we put into motion
following our IPO in November 1997 came together as planned. Sales increased 31%
to  $25,275,000,  and net income to $1,767,000.  We had a healthy boost from new
products that were well received by the pharmaceutical industry.

We met, and often exceeded,  all of our major goals for 2001. We diversified our
client  portfolio  to  include  small  and  mid-sized  pharmaceutical  and  drug
development  companies.  Sales of our Culex(R)  Automated  Blood Sampler grew to
include new customers,  and we saw follow-on sales to early users of the device.
We have  stimulated  strong  interest  in Culex in the  European  pharmaceutical
community,  and we expect our strategic  alliance with Biotec Centre in Orleans,
France, and a greater BAS visibility in Europe, to expand those sales further.

With  contract  analytical  services  operating  near  capacity,   we  installed
additional  robotic  sample-handling  systems and mass spectrometers at the West
Lafayette  Technical  Center and broke ground in Evansville  to double  capacity
there.   We  will  begin   construction  of  additional   preclinical   research
laboratories in West Lafayette in the spring of 2002.  Preparing for the future,
we added a scientific  director and a number of talented,  experienced people at
West Lafayette, Evansville and at Warwickshire, England.

Joining an alliance of other companies focused on pharmaceutical development has
resulted in real benefits.  The member companies of the Pharmaceutical  Industry
Contract  Research  Alliance  (PICRA) are working  together in a variety of ways
from joint research,  to  participating  in larger projects with  pharmaceutical
companies, to co-marketing, to exploring international opportunities and sharing
information for the common good in areas such as quality assurance training.


                                     - 2 -
<PAGE>

I continue to see macroscopic  influences  that are extremely  favorable to BAS.
These include an aging population,  the globalization of pharmaceutical research
and  a  growing  list  of  patent   expirations  that  are  spurring  the  large
pharmaceutical  companies to accelerate  development of new front-line products.
Equally important is the change in drug discovery methodology over the last five
years.  This is defined by buzz words like genomics,  proteomics,  combinatorial
chemistry,  gene  chips  and  high  throughput  screening.   While  the  changes
themselves  lag far behind the  perceptions  in the popular  press (it will take
longer),  there  are a larger  number  of new  molecular  entities  coming  into
preclinical  development,  a strong point for BAS.  Preclinical  development  is
where a potential  drug and its  pharmacology  and safety  aspects are  assessed
prior to dosing "first time in man."

Our team is keenly aware of the need to generate shareholder value because it is
only from this that we  ultimately  have the resources to fight disease with our
products and services.  We work hard to balance the  interests of  shareholders,
employees,  customers and the  communities in which we work.  Thank you for your
support and encouragement as we take on the challenges of 2002.



                                        /s/ Peter T. Kissinger
                                        ----------------------------------------
                                        Peter T. Kissinger
                                        Chairman, President and CEO

                                        [GRAPHIC OMITTED]


                                     - 3 -
<PAGE>

BETTER PRODUCTS

A PRODUCT FOR NOW AND FOR THE FUTURE

Developed  through input from our customers and through the  experiences  of our
own  research  teams,  the Culex(R)  Automated  Blood  Sampler has  continued to
capture the interest of the pharmaceutical  industry,  first in the U.S. and now
in Europe.  Those  companies  who  purchased  the  product  early are now buying
additional units,  often several at once.  Recent  experiences in Europe show we
have a lively market  there.  Each Culex unit  requires  consumable  products to
support its use, and sales of those products are growing rapidly.  Manufacturing
staff are adding resources in response.

EPSILONS BRIGHT FUTURE

The epsilon  instrument  family was developed and is being sold around the world
to solve bioanalytical  problems. It is the implementation of an original design
based on a state-of-the art analytical system and an electronic  instrument that
would take advantage of the latest global networking capabilities.  It has broad
market  appeal and is used for such things as the study of natural  antioxidants
as cancer  preventatives,  the  development  of batteries  for  implanted  nerve
stimulators and the evaluation of new drugs for Alzheimer's  disease, to mention
just a few of many  applications.  Our epsilon products can be used for teaching
as well as research.  All of its  capabilities  can be linked via the Web,  thus
providing an avenue to share data and information, to upgrade to newer versions,
to demonstrate its capabilities and to provide service for the product.

The chemical  measurement  needs of the world are being pushed to new  extremes.
Many samples are of smaller size, and more information  about them is needed. At
the same time, the market dictates that our products must be more accurate, more
efficient  and more  economical.  The epsilon  family was designed to meet these
challenges,   changing  as  market  demands  change.  Ongoing  research  at  BAS
anticipates, and sometimes creates, the future.

[GRAPHIC OMITTED. CAPTION: Rod Yoder, long-time BAS graphic designer, is part of
the team that maintains the BAS web sites and keeps the information  current and
the look fresh and appealing.  A keen fisherman and competitor,  Rod has brought
home more than one  prize-winning  catch.]

                                     - 4 -

<PAGE>

HOW WE DO IT

[GRAPHIC OMITTED.  CAPTION: Dr. Lisa Clare, Study Director at BAS Evansville, is
a veterinarian  and a true animal lover.  Although her horse Andy is still a bit
young to be  ridden,  they enjoy an autumn  afternoon  in the  southern  Indiana
countryside.]

BAS AND THE INTERNET

We've all heard about the failure of many so-called dot com  companies,  but the
fact is that BAS relishes this technology and benefits from it daily. Let's take
a look at some of the efficiencies we gain.

Our web sites save the Company  several  hundred  thousand  dollars each year by
reducing  printing,  postage and  advertising  costs.  For  example,  all of our
catalog  information,  our global  pricing,  and our technical  journal  Current
Separations are online, and we regularly  communicate with customers via several
online newsletters.

BAS AND ANIMAL RESEARCH

Our core  strengths are animal  science and  analytical  science,  backed by the
latest in mechanical,  electronic and software engineering.  We are dedicated to
the three Rs of animal research:  Reduce, Refine and Replace.  Reduce the number
of animals used.  Refine the work by careful  planning to get the maximum amount
of information.  Replace animals with alternative methodology whenever possible.
It will be a very long time  before  new drugs  will be  introduced  to  humans,
before we fully  understand  their safety and  effectiveness  in animal  disease
models.  In the meantime,  it is our policy at BAS to follow the three Rs and to
continue to develop instruments,  software and protocols which reduce the number
of animals needed and improve the quality of data obtained.

BAS does research for both human and animal  health,  veterinary  medicine.  BAS
Vetronics Division develops and sells instrumentation used in veterinary clinics
and pharmaceutical research facilities to assure the health of companion animals
and to  monitor  the  safety and  effectiveness  of new animal and human  drugs.
Clinics use our systems to determine the cardiac  health of dogs and cats and to
track vital signs in surgery for them and for more exotic pets like  parrots and
boas. Pet ownership improves human health,  another aspect of Better Science for
Better Health.


                                     - 5 -
<PAGE>


WHY WE DO SOME OF THE THINGS WE DO

Why do medications have expiration  dates? Who decides what those should be? Why
does it take 12 years for a new drug to be approved by the FDA?  Why are we told
not to store our medications in the bathroom? The answers to these questions are
found  in   stability   testing  ...  a  service  BAS  provides  to  many  major
pharmaceutical manufacturers.

Packaged manufactured products are exposed to a variety of conditions. The drugs
are placed in an environment  that is strictly  controlled for  temperature  and
humidity.   Those  packages  are  then  removed  for  testing  at  predetermined
intervals. A typical schedule might require testing the product at 6 weeks, then
at 3, 6, 9, 12, 18 and 24 months.  Some programs last up to 5 years,  accounting
in part for the long  development  time necessary to bring a new drug to market.
The series of stability tests  evaluates the potency of the product,  along with
its appearance, the presence of impurities and how well the product dissolves.

The manufacturers analyze the data, looking for changes in the product over time
and they use this  information to develop  expiration  dates.  The high heat and
high humidity used to accelerate  the  degradation  process are similar to those
conditions found in the average  bathroom,  so we learn that storing  medication
there can hasten the decrease of its potency and efficacy.

[GRAPHIC OMITTED. CAPTION: Dr. Maggie Voelz, Director of Pharmaceutical Analysis
at BAS,  oversees the stability testing operation and enjoys the serenity of her
home and  yard...  along  with the  companionship  of her dog who is also  named
Maggie. (No, she didn't name the dog after herself. Maggie, the dog, was adopted
and already had her name when she joined the Voelz family.)]



                                     - 6 -
<PAGE>

[GRAPHIC  OMITTED.  CAPTION:  Tim Grever has been instrumental in developing BAS
automation   capabilities,   quadrupling  productivity  and  increasing  profits
markedly in analytical testing contract work. Perhaps the creativity, discipline
and  precision  he  developed  playing the piano and organ have  carried over to
enrich his work as a scientist.]


HOW WE IMPROVE LIVES

WHAT WE DO AFFECTS COUNTLESS LIVES ... ONE AT A TIME

Pete  Kissinger,  BAS Chairman and CEO,  often  reminds us of how many lives are
saved and how many  people are living  better  lives  because of the work we do.
Somehow,  though,  we do not tend to feel the true  impact of that work until it
affects someone we know.

Recently,  someone  very  close to us was  diagnosed  with  Obsessive/Compulsive
Disorder, a physiological  problem wherein brain wiring goes awry. (One possible
cause is a childhood  fever.) Most of us cannot grasp the victim's  deep anguish
 ... the panic, the anger and the  frustration.  Life becomes totally chaotic and
unmanageable.

Ten years ago, some patients  suffering from OCD were sedated and  hospitalized,
perhaps  for the rest of their  lives.  Now,  within  two weeks  this  young man
returned to work and is again leading a full, productive life. That recovery was
possible,  in significant  measure,  because of products invented and analytical
techniques  developed  at BAS.  The drugs in his  treatment  regimen,  one newly
approved by the FDA, were worked on here.

BAS  was  one  of  the  first  to  measure  catecholamines,  like  dopamine,  in
cerebrospinal  fluid.  Our instruments  and in vivo sampling  systems helped the
developers of new depression medications monitor neurotransmitters in rats while
they  searched  for an effective  cure.  Both our  instruments  and our services
groups work with clients looking for cures to depression,  Alzheimer's  disease,
ADHD, Parkinsonism and other central nervous system disorders. Data developed at
BAS was a  significant  part of the  information  used by the FDA to approve the
drug that has helped our friend rebuild his life.

We see other  frequent  examples  of BAS science  returning  as  treatments  for
employees  and their  families.  A number of our people are  diabetic.  They use
glucose  meters  that  were  developed  with the aid of BAS  scientists  and BAS
products.  A leading antibiotic from Pfizer that BAS has worked on for more than
a decade was recently prescribed for Pete Kissinger's son. The list goes on. BAS
science affects all our lives in endless ways.


                                     - 7 -
<PAGE>


BAS AND EVERYDAY BOTANICALS

One cannot visit a grocery or pharmacy in the USA without seeing  numerous plant
products  which are purported to alleviate or prevent nearly every human malady.
Some of them may have powerful drug-like  effects,  but because they are natural
products they are not regulated by the Food and Drug  Administration  (FDA) like
ethical drugs. In most cases, there have been no preclinical or clinical studies
to substantiate popular claims made about these products.

Botanicals  are a benefit  and a risk.  They can  interact  with and  change the
behavior of prescribed  drugs. A recent example is the very adverse results when
St. John's Wort is combined  with  cocktails of drugs to treat HIV At BAS we are
contributing products and services to help gain a greater understanding of which
of these  products work and which do not. We are also looking for  opportunities
among  natural  products  to  identify  molecules  that  might be  optimized  as
pharmaceuticals through synthetic modifications.

In 2001 we  actively  studied  the  effects  of green  tea  catechins  on type 2
diabetes and the metabolic pathways of herbals. We play a role with the National
Institutes  of Health  Botanical  Centers  around the country,  most notably our
close collaboration with the Center headquartered at Purdue University.


                                     - 8 -
<PAGE>


<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
   UNAUDITED (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

FOR THE QUARTER ENDED IN FISCAL 2001
------------------------------------
                                                  DECEMBER 31     MARCH 31     JUNE 30     SEPTEMBER 30

<S>                                                  <C>           <C>         <C>            <C>
 Total revenue                                       $5,426        $6,842      $6,400         $6,607
 Gross profit                                         2,422         3,472       3,100          3,126
 Net income (loss)                                      195           582         515            475
 Basic net income (loss) per common share(1)            .04           .13         .11            .10
 Diluted net income (loss) per common and
    common equivalent share(1)                          .04           .13         .11            .10


FOR THE QUARTER ENDED IN FISCAL 2000
------------------------------------
                                                  DECEMBER 31     MARCH 31     JUNE 30     SEPTEMBER 30

 Total revenue                                       $4,446        $4,090      $5,452         $5,235
 Gross profit                                         1,409         1,398       2,161          2,036
 Net income (loss)                                     (372)         (427)       (139)          (444)
 Basic net income (loss) per common share(1)           (.08)         (.09)       (.03)          (.10)
 Diluted net income (loss) per common and
   common equivalent share(1)                          (.08)         (.09)       (.03)          (.10)

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

                                     - 9 -
<PAGE>


MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

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  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 THE COMPANY'S  FORM 10-KFILED WITH THE SECURITIES
EXCHANGE  COMMISSION.  THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED HEREIN.

OVERVIEW

The Company  provides a broad range of value-added  services  focused on product
development for 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 in solving
complex scientific problems by providing cost-effective results to its customers
on an accelerated basis.  Founded in 1974 in Lansing,  Michigan and relocated to
West Lafayette,  Indiana in 1975, the Company has experienced  growth  primarily
through internal expansion,  supplemented by strategic acquisitions.  As part of
its internal growth strategy, the Company has developed technical specialties in
such  areas  as  chromatography,  electrochemistry,  in vivo  sampling  and mass
spectrometry.  The  Company's  growth has  strategically  positioned  it to take
advantage of  globalization  in the  marketplace and to provide new services and
areas of technical expertise to its customers.

Throughout  its  history,  the Company  has taken steps to position  itself as a
leader in biomedical research. Development of the Company's infrastructure began
in 1975 when it established  relationships  with several  customers and multiple
international  distributors.  In  1990,  the  Company  began  offering  contract
services to  customers  that  lacked the time or  expertise  to perform  certain
analyses using the Company's analytical products.  In 1995, the Company acquired
a distributor,  BAS  Instruments  Ltd., to further  solidify its presence in the
United  Kingdom.  In 1998,  the Company  acquired a  manufacturer  of veterinary
monitoring  and  diagnostic  equipment,  BAS  Vetronics,  to provide  additional
preclinical support. In 1998, the Company acquired a contract services firm, BAS
Analytics  Ltd.,  to offer local  service in the United  Kingdom.  In 2000,  the
Company  also  acquired a  contract  services  firm,  BAS  Evansville,  to offer
preclinical services.

Revenues  are  derived  principally  from  (i)  research  services  provided  to
customers,  and (ii) the sale of the Company's  instruments  and other products.
Both methods of generating  revenue  utilize the Company's  ability to identify,
isolate  and  resolve   client   problems   relating  to  the   separation   and
quantification  of  individual  substances  in  complex  mixtures.  The  Company
supports the  pharmaceutical  industry by focusing on  development  services for
biomedical research. The Company's products are sold primarily to pharmaceutical
firms and research organizations. Principal customers include scientists engaged
in drug  metabolism  studies,  as well as those  engaged  in basic  neuroscience
research.  The Company was the first to commercialize  the liquid  chromatograph
and  electrochemistry  technology  which is now the  worldwide  standard for the
determination of neurotransmitter substances.  Research products include in vivo
sampling devices, reagent chemicals, electrochemical apparatus and sensors.


                                     - 10 -
<PAGE>

The Company's pharmaceutical service contracts generally have terms ranging from
several  weeks to several  years.  A portion of the  contract  fee is  generally
payable  upon   acceptance  of  the  agreement  with  the  balance   payable  in
installments  over the life of the contract.  The contracts are broken down into
discrete  units of  deliverable  services for which a fixed fee for each unit is
established,  and revenue and related  direct costs are  recognized  as specific
contract terms are fulfilled under the percentage of completion method utilizing
units  of  delivery.  The  termination  of a  contract  results  in no  material
adjustments to revenue or direct costs previously recognized, and the Company is
entitled  to  payment  for all work  performed  through  the date of  notice  of
termination and all costs associated with termination of a contract. The Company
recognizes  revenues  from the sale of its products  and the related  costs upon
completion  of the  installation  process.  Revenue  and the  related  costs  of
products not requiring installation are recognized upon shipment of the products
to customers.

The Company's  management  believes that fluctuations in the Company's quarterly
results are caused by a number of factors,  including the  Company's  success in
attracting new business, the size and duration of service contracts,  the timing
of its  clients'  decisions to enter into new  contracts,  the  cancellation  or
delays of ongoing contracts,  the timing of acquisitions and other factors, many
of which are beyond the Company's control.  In fiscal 2001, 19% 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  profitability  of the Company's
business activities in any such market.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated,  certain statement of
operations data as a percentage of total revenue.

<TABLE>
<CAPTION>
                                     PERCENTAGE OF REVENUE YEAR
                                         ENDED SEPTEMBER 30,
                                  2001            2000           1999
                                  ----            ----           ----

<S>                              <C>             <C>            <C>
 Service revenue                  60.1%           57.2%          50.3%
 Product revenue                  39.9            42.8           49.7
                                 -----           -----          -----
   Total revenue                 100.0           100.0          100.0
 Cost of service revenue          38.2            48.1           32.7
 Cost of product revenue          13.8            15.5           19.9
                                 -----           -----          -----
   Total cost of revenue          52.0            63.6           52.6
                                 -----           -----          -----
 Gross profit                     48.0            36.4           47.4
 Operating expenses:
 Selling                          12.7            17.7           19.9
 Research and development          6.4             9.4            9.8
 General and administrative       15.1            15.6           12.8
                                 -----           -----          -----
   Total operating expenses       34.2            42.7           42.5
 Operating income (loss)          13.8            (6.3)           4.9
 Other income (expense), net      (1.5)           (3.2)          (0.6)
                                 -----           -----          -----
 Income (loss) before
   income taxes                   12.3            (9.5)           4.3
 Income taxes (benefit)            5.3            (2.2)           1.4
                                 -----           -----          -----
 Net income (loss)                 7.0%           (7.3)%          2.9%
                                 =====           =====          =====
</TABLE>

                                     - 11 -
<PAGE>


YEAR ENDED SEPTEMBER 30, 20017 COMPARED WITH YEAR ENDED SEPTEMBER 30, 2000

Total  revenue for the year ended  September 30, 2001  increased  31.5% to $25.3
million  from $19.2  million  for the year ended  September  30,  2000.  Service
revenue  increased to $15.2  million for the year ended  September 30, 2001 from
$11.0  million  for the year  ended  September  30,  2000,  primarily  due to an
increased  number of  bioanalytical,  preclinical  and  pharmaceutical  analysis
contract services. Product revenue increased to $10.1 million for the year ended
September  30, 2001 from $8.2  million for the year ended  September  30,  2000,
primarily due to the Culex(R)  Automated Blood Sampling System,  epsilon(TM) and
related products.

Costs of revenue  increased  7.7% to $13.2 million for the year ended  September
30, 2001 from $12.2 million for the year ended September 30, 2000. This increase
of $1.0  million was due to the  increase  in  corresponding  revenue.  Costs of
revenue  for the  Company's  services  decreased  to  63.5% as a  percentage  of
services  revenue for the year ended  September  30, 2001 from 84.1% of services
revenue for the year ended September 30, 2000, due to additional  bioanalytical,
preclinical  and  pharmaceutical  analysis  service revenue without a comparable
increase  in  corresponding  labor  costs.  Costs of revenue  for the  Company's
products  decreased  to 34.7% as a  percentage  of product  revenue for the year
ended  September  30,  2001 from  36.2% of  product  revenue  for the year ended
September 30, 2000, primarily due to a change in product mix.

Selling  expenses for the year ended  September 30, 2001  decreased 5.8% to $3.2
million  from $3.4 million  during the year ended  September  30,  2000,  due to
decreased foreign commission expense.  Research and development expenses for the
year ended  September 30, 2001 decreased 10.8% to $1.6 million from $1.8 million
for the year ended  September  30, 2000,  due to the increase in research  grant
reimbursements. General and administrative expenses for the year ended September
30, 2001  increased  27.6% to $3.8  million from $3.0 million for the year ended
September  30,  2000,  primarily  due  to  organizational  restructuring  of our
preclinical  operation,   increased  health  care  costs  and  the  increase  in
utilities.

Other income (expense), net, was $(384,000) in the year ended September 30, 2001
compared to $(621,000) in the year ended  September 30, 2000, as a result of the
decrease in interest  expense due to  decreased  use of the line of credit.

The  Company's  effective  tax rate for 2001 was  43.1%,  compared  to 23.8% for
fiscal 2000. This increase was primarily due to the increase in earnings and the
impact of nondeductible foreign losses incurred in fiscal 2001.

YEAR ENDED SEPTEMBER 30, 2000, COMPARED WITH YEAR ENDED SEPTEMBER 30, 1999

Total  revenue for the year ended  September  30, 2000  decreased  3.2% to $19.2
million  from $19.9  million  for the year ended  September  30,  1999.  Service
revenue  increased to $11.0  million for the year ended  September 30, 2000 from
$10.0 million for the year ended  September  30, 1999,  primarily as a result of
the addition of preclinical  services  through the  acquisition of T.P.S.,  Inc.
This  increase  was more than offset by the decrease in product  sales.  Product
revenue  decreased  to $8.2 million for the year ended  September  30, 2000 from
$9.9  million  for the year  ended  September  30,  1999,  primarily  due to the
decrease in sales to the Pacific Rim and Europe.

Costs of revenue  increased  17.0% to $12.2 million for the year ended September
30, 2000 from $10.4 million for the year ended September 30, 1999. This increase
of $1.8  million was largely due to the  addition of costs of services  from the
acquisition  of  T.P.S.,  Inc.  Costs  of  revenue  for the  Company's  services
increased  to 84.1 % as a  percentage  of  services  revenue  for the year ended
September 30, 2000 from 65.0% of services  revenue for the year ended  September
30,  1999,  due to the  addition of costs of services  from the  acquisition  of
T.P.S., Inc. Costs of revenue for the Company's products decreased to 36.2% as a
percentage of product  revenue for the year ended  September 30, 2000 from 40.0%
of product  revenue for the year ended  September  30, 1999,  due primarily to a
change in product mix.

Selling  expenses for the year ended  September 30, 2000 decreased 13.8% to $3.4
million  from $3.9 million  during the year ended  September  30,  1999,  due to
decreased foreign commission expense.  Research and development expenses for the
year ended  September 30, 2000  decreased 7.6% to $1.8 million from $2.0 million
for the year ended  September  30, 1999,  due to the decrease in research  grant
activity.  General and administrative  expenses for the year ended September 30,
2000  increased  17.3% to $3.0  million  from $2.6  million  for the year  ended
September  30, 1999,  primarily as a result of the addition of expenses from the
acquisition of T.P.S., Inc.

Other income (expense), net, was $(621,000) in the year ended September 30, 2000
as compared to $(114,000)  in the year ended  September 30, 1999, as a result of
the increase in interest expense due to increased use of the line of credit.

The  Company's  effective  tax rate for 2000 was  23.8%,  compared  to 32.8% for
fiscal 1999.  This decrease was primarily due to  nondeductible  foreign  losses
incurred in fiscal 2000.

                                     - 12 -
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

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, 2001, the Company had cash and cash equivalents of
$374,000,  compared to cash and cash  equivalents  of $478,000 at September  30,
2000. The decrease in cash resulted primarily from capital  expenditures made to
expand the Company's facilities and operations.

The Company's net cash provided by operating  activities  was $4,028,000 for the
year ended September 30, 2001. Cash provided by operations during the year ended
September 30, 2001  consisted of net income of $1,767,000,  non-cash  charges of
$2,143,000 and a net decrease of $118,000 in operating  assets and  liabilities.
The most  significant  increase  in  operating  liabilities  related to accounts
payable, which increased $1,220,000 at September 30, 2001.

Cash used by investing  activities  decreased to $1.6 million for the year ended
September  30, 2001 from $2.0  million for the year ended  September  30,  2000,
primarily due to payments  relating to the  acquisition  of T.P.S.,  Inc. in the
year ended  September 30, 2000.  Cash used by financing  activities for the year
ended  September 30, 2001 was $2.5  million,  due to the payments on the line of
credit and long-term debt.

The  Company's net cash used by operating  activities  was $539,000 for the year
ended  September  30,  2000.  Cash  used by  operations  during  the year  ended
September 30, 2000 consisted of net loss of $1,382,000, less non-cash charges of
$1,448,000, plus a net increase of $605,000 in operating assets and liabilities.
The most  significant  decrease  in  operating  liabilities  related to accounts
payable, which decreased $787,000 at September 30, 2000.

Cash used by investing  activities  decreased to $2.0 million for the year ended
September  30, 2000 from $4.0  million for the year ended  September  30,  1999,
primarily  as a result of the  reduction  of  Company  purchases  of  laboratory
equipment.  Cash provided by financing  activities for the year ended  September
30, 2000 was $1.1 million, due to the increased use of the line of credit offset
by payments on long-term debt.

Total  expenditures by the Company for property and equipment were $1.7 million,
$1.6  million  and $4.1  million in fiscal  2001,  2000 and 1999,  respectively.
Expenditures  made in connection  with the expansion of the Company's  operating
facilities  and  purchases  of  laboratory  equipment  account  for the  largest
portions of these  expenditures.  The capital investments relate to the purchase
of additional  laboratory  equipment  corresponding to anticipated  increases in
research  services to be provided by the  Company.  The Company  expects to make
other investments to expand its operations through internal growth and strategic
acquisitions,  alliances and joint  ventures.  In addition,  the Company entered
into a $2.5 million  commitment in 2001 to expand  facilities at its preclinical
site in Evansville, Indiana.

Based on its current  business  activities,  the Company believes cash generated
from its operations and amounts available under its existing bank line of credit
and credit facility will be sufficient to fund the Company's working capital and
capital expenditure requirements for the foreseeable future.

The Company  has a revolving  line of credit,  which  expires  April 1, 2002 and
allows  borrowings  of  up  to  $3,500,000.  Interest  accrues  monthly  on  the
outstanding  balance at the banks  prime  rate minus 25 to plus 75 basis  points
(5.25% at September  30, 2001) or at the London  Interbank  Offered Rate (LIBOR)
plus 200 to 300 basis points, as elected by the Company,  depending upon certain
financial  ratios.  The  line is  collateralized  by  inventories  and  accounts
receivable and requires the Company to maintain certain  financial  ratios.  The
Company  pays a fee equal to 0.125 to 0.5 basis  points,  depending  on  certain
financial  ratios,  on the unused portion of the line of credit. As of September
30, 2001 and 2000,  interest on the entire outstanding  balance was based on the
prime  rate minus 25 basis  points  and the prime  rate  minus 50 basis  points,
respectively.  The balance  outstanding  on this line of credit at September 30,
2001 was $236,000.

On June 24, 1999 the Company  obtained a $3,500,000  commercial  mortgage with a
bank on the property in West Lafayette,  Indiana.  The mortgage note requires 59
monthly principal  payments of $19,444 plus interest followed by a final payment
for the unpaid  principal  amount of $2,352,804  due June 24, 2004.  Interest is
charged at the  one-month  LIBOR rate plus 200 basis points  (5.58% at September
30, 2001).

INFLATION

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

NEW ACCOUNTING PRONOUNCEMENTS

Please refer to the notes to consolidated  financial statements for a discussion
of recently issued accounting standards.


                                     - 13 -
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS

                                                                SEPTEMBER 30,
                                                                -------------
                                                           2001               2000
                                                           ----               ----
<S>                                                   <C>                 <C>
ASSETS
Current assets:
  Cash and cash equivalents                           $    373,738        $    477,635
  Accounts receivable
    Trade                                                3,634,143           3,012,003
    Grants                                                 116,719              37,224
    Unbilled revenues and other                            514,997             313,220
  Inventories                                            2,391,081           2,234,644
  Deferred income taxes                                    442,903             410,796
  Refundable income taxes                                  325,001             313,043
  Prepaid expenses                                          71,062              55,998
                                                      ------------        ------------
Total current assets                                     7,869,644           6,854,563
Property and equipment
  Land and improvements                                    495,624             495,390
  Buildings and improvements                            13,507,731          13,339,603
  Machinery and equipment                               10,795,295           9,536,275
  Office furniture and fixtures                          1,092,452           1,072,362
  Construction in process                                  112,790               7,039
                                                      ------------        ------------
                                                        26,003,892          24,450,669
  Accumulated depreciation and amortization             (7,082,300)         (5,537,957)
                                                      ------------        ------------
                                                        18,921,592          18,912,712
                                                      ------------        ------------
Goodwill, less accumulated amortization of
  $280,871 in 2001 and $213,169 in 2000                    962,924             990,123
Other assets                                               222,494             139,208
                                                      ------------        ------------
Total assets                                          $ 27,976,654        $ 26,896,606
                                                      ============        ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                    $  2,618,788        $  1,398,326
  Income taxes payable                                     176,000               1,956
  Accrued expenses                                         746,741             618,998
  Customer advances                                      1,063,467           1,163,152
  Revolving line of credit                                 235,687           2,267,281
  Current portion of capital lease obligations             261,123             239,916
  Current portion of long-term debt                        233,328             234,097
                                                      ------------        ------------
Total current liabilities                                5,335,134           5,923,726
Capital lease obligations, less current portion            402,276             663,399
Long-term debt, less current portion                     2,741,684           2,975,012
Deferred income taxes                                    1,667,231           1,272,811
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 -
      4,569,416 in 2001 and 4,562,645 in 2000            1,012,190           1,010,690
  Additional paid-in capital                            10,506,200          10,496,505
  Retained earnings                                      6,344,666           4,577,909
  Accumulated other comprehensive loss                     (32,727)            (23,446)
                                                      ------------        ------------
Total shareholders' equity                              17,830,329          16,061,658
                                                      ------------        ------------
Total liabilities and shareholders' equity            $ 27,976,654        $ 26,896,606
                                                      ============        ============

                                See accompanying notes.
</TABLE>

                                     - 15 -
<PAGE>


<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                   YEAR ENDED SEPTEMBER 30,
                                                                   ------------------------
                                                          2001                2000               1999
                                                          ----                ----               ----

<S>                                                   <C>                 <C>                 <C>
Service revenue                                       $ 15,202,066        $ 10,999,609        $ 9,992,670
Product revenue                                         10,072,582           8,223,692          9,858,271
                                                      ------------        ------------        -----------
    Total revenue                                       25,274,648          19,223,301         19,850,941

Cost of service revenue                                  9,660,288           9,245,380          6,498,817
Cost of product revenue                                  3,494,258           2,973,787          3,943,437
                                                      ------------        ------------        -----------
    Total cost of revenue                               13,154,546          12,219,167         10,442,254
                                                      ------------        ------------        -----------
Gross profit                                            12,120,102           7,004,134          9,408,687

Operating expenses:
  Selling                                                3,204,056           3,400,273          3,942,681
  Research and development                               1,611,045           1,805,933          1,955,673
  General and administrative                             3,814,601           2,990,234          2,549,806
                                                      ------------        ------------        -----------
    Total operating expenses                             8,629,702           8,196,440          8,448,160
                                                      ------------        ------------        -----------
Operating income (loss)                                  3,490,400          (1,192,306)           960,527
Interest income                                              5,910              15,483             30,842
Interest expense                                          (417,211)           (553,715)          (226,518)
Other income (expense)                                      46,479             (34,067)            93,520
Loss on sale of property and equipment                     (18,671)            (48,708)           (11,293)
                                                      ------------        ------------        -----------
Income (loss) before income taxes                        3,106,907          (1,813,313)           847,078
Income taxes (benefit)                                   1,340,150            (431,303)           277,501
                                                      ------------        ------------        -----------
Net income (loss)                                     $  1,766,757        $ (1,382,010)       $   569,577
                                                      ============        ============        ===========
Net income (loss) per share:
  Basic                                                     $ 0.39             $ (0.30)            $ 0.13
  Diluted                                                   $ 0.38             $ (0.30)            $ 0.12
Weighted average common shares outstanding:
  Basic                                                  4,564,620           4,550,336          4,505,819
  Diluted                                                4,600,498           4,550,336          4,675,850

                                         See accompanying notes.
</TABLE>

                                     - 16 -
<PAGE>


<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                                     ACCUMULATED
                                                                                                       OTHER
                                                                   ADDITIONAL                       COMPREHENSIVE        TOTAL
                                    PREFERRRED        COMMON         PAID-IN          RETAINED         INCOME        SHAREHOLDERS'
                                      SHARES          SHARES         CAPITAL          EARNINGS         (LOSS)           EQUITY
                                   -----------      ---------      -----------      -----------     -------------    -------------

<S>                                <C>             <C>             <C>              <C>              <C>              <C>
BALANCE AT SEPTEMBER 30, 1998      $       ---     $  995,778      $10,467,957      $ 5,390,342      $  (10,568)      $16,843,509
Comprehensive income (loss)
  Net income                               ---            ---              ---          569,577             ---           569,577
  Other comprehensive loss:
    Foreign currency translation
      adjustments                          ---            ---              ---              ---         (10,027)          (10,027)
                                                                                                                      -----------
  Total comprehensive income                                                                                              559,550
Exercise of stock options                  ---          4,214           14,021              ---             ---            18,235

BALANCE AT SEPTEMBER 30, 1999      $       ---     $  999,992      $10,481,978      $ 5,959,919      $  (20,595)      $17,421,294
Comprehensive income (loss)
  Net income                               ---            ---              ---       (1,382,010)            ---        (1,382,010)
  Other comprehensive loss:
    Foreign currency translation
      adjustments                          ---            ---              ---              ---          (2,851)           (2,851)
                                                                                                                      -----------
  Total comprehensive income                                                                                           (1,384,861)
Exercise of stock options                  ---         10,698           14,527              ---             ---            25,225

BALANCE AT SEPTEMBER 30, 2000      $       ---     $1,010,690      $10,496,505      $ 4,577,909      $  (23,446)      $16,061,658
Comprehensive income (loss)
  Net income                               ---            ---              ---        1,766,757             ---         1,766,757
  Other comprehensive loss:
    Foreign currency translation
      adjustments                          ---            ---              ---              ---          (9,281)           (9,281)
                                                                                                                      -----------
  Total comprehensive income                                                                                            1,757,476)
Exercise of stock options                  ---          1,500            9,695              ---             ---            11,195


BALANCE AT SEPTEMBER 30, 2001      $       ---     $1,012,190      $10,506,200      $ 6,344,666       $ (32,727)      $17,830,329


                                                      See accompanying notes.

</TABLE>

                                     - 17 -
<PAGE>


<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                   YEAR ENDED SEPTEMBER 30,
                                                                                   ------------------------
                                                                         2001               2000              1999
                                                                         ----               ----              ----

<S>                                                                  <C>               <C>                <C>
OPERATING ACTIVITIES
Net income (loss)                                                    $  1,766,757      $ (1,382,010)      $   569,577
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
  Depreciation                                                          1,600,435         1,516,728         1,196,353
  Amortization                                                            161,274           119,685            81,208
  Loss on sale of property and equipment                                   18,671            48,708            11,293
  Deferred income taxes                                                   362,313          (237,330)           31,901
  Changes in operating assets and liabilities:
    Accounts receivable                                                  (903,212)          534,160          (637,781)
    Inventories                                                          (156,437)        (440, 878)           89,947
    Prepaid expenses and other assets                                    (232,425)          108,828            19,530
    Accounts payable                                                    1,220,462          (787,123)           79,374
    Income taxes payable                                                  162,086          (313,347)         (153,220)
    Accrued expenses                                                      127,743         (337, 834)          463,367
    Customer advances                                                     (99,885)          631,253          (164,899)
                                                                     ------------      ------------       -----------
Net cash provided (used) by operating activities                        4,027,782          (539,160)        1,586,650

INVESTING ACTIVITIES
Capital expenditures                                                   (1,673,411)       (1,572,627)       (4,054,319)
Proceeds from sale of property and equipment                               45,425            13,972            42,492
Payments for purchase of net assets from
  T.P.S., Inc. net of cash acquired                                           ---          (446,469)              ---
                                                                     ------------      ------------       -----------
Net cash used by investing activities                                  (1,627,986)       (2,005,124)       (4,011,827)

FINANCING ACTIVITIES
Borrowings on line of credit                                            1,003,428         2,784,572         2,850,000
Payments on line of credit                                             (3,035,022)         (781,199)       (2,850,000)
Payments on capital lease obligations                                    (239,916)         (220,432)         (308,447)
Borrowings of long-term debt                                                  ---               ---         3,500,000
Payments of long-term debt                                               (234,097)        (707, 841)          (58,332)
Net proceeds from the exercise of stock options                            11,195            25,225            18,235
                                                                     ------------      ------------       -----------
Net cash provided (used) by financing activities                       (2,494,412)        1,100,325         3,151,456
Effect of exchange rate changes                                            (9,281)           (2,815)          (10,027)
                                                                     ------------      ------------       -----------
Net increase (decrease) in cash and cash equivalents                     (103,897)       (1,446,774)          716,252
Cash and cash equivalents at beginning of year                            477,635         1,924,409         1,208,157
                                                                     ------------      ------------       -----------
Cash and cash equivalents at end of year                             $    373,738      $    477,635       $ 1,924,409
                                                                     ------------      ------------       -----------

                                                See accompanying notes.
</TABLE>

                                     - 18 -
<PAGE>


1.   SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Bioanalytical  Systems,  Inc.  and its  subsidiaries  (the  Company)  engage  in
laboratory services,  consulting and research related to human and animal health
care. The Company also manufactures  scientific instruments and software for use
in  the  same   activities.   The  Company's   customers   include   principally
pharmaceutical companies and are located in the United States and 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.

CASH EQUIVALENTS

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

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.

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.

INVENTORIES

Inventories are stated at the lower of cost or market.  Cost is determined using
the last-in, first-out (LIFO) method. GOODWILL Goodwill represents the excess of
cost of acquisitions over the fair value of net assets acquired and is amortized
by the straight-line method over periods ranging from 15 to 20 years.

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.

LONG-LIVED ASSETS

The carrying value of the long-lived assets, including goodwill, is periodically
reviewed by management. If management's review indicates that the carrying value
may be impaired, then the impairment amount will be written off.


                                     - 19 -
<PAGE>


REVENUE RECOGNITION

The Company's pharmaceutical service contracts generally have terms ranging from
several weeks to several years.  The typical  contract is six months to one year
in duration.  A portion of the contract fee is generally payable upon acceptance
of the agreement with the balance payable in  installments  over the life of the
contract.  A majority of the  Company's  contracts are broken down into discrete
units of deliverable services for which a fixed fee for each unit is established
and revenue and related  direct  costs are  recognized  as units of  deliverable
services are fulfilled. For all other service contracts, the Company allocates a
ratable  portion of the total contract fee to the units of deliverable  services
and recognizes  revenue and the related direct costs as the units of deliverable
services are  fulfilled.  The Company  recognizes  revenues from the sale of its
products and the related  costs upon  completion  of the  installation  process.
Revenue  and the  related  costs of  products  not  requiring  installation  are
recognized upon shipment of the products to customers.

Unbilled  revenues  represent  revenues  earned  under  contracts  in advance of
billings.

ADVERTISING EXPENSE

The Company  expenses  advertising  costs as incurred.  Advertising  expense was
$195,833, $306,737 and $308,831 for 2001, 2000 and 1999, respectively.

NEW ACCOUNTING PRONOUCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 was effective October 1, 2000.
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current  earnings or other  comprehensive  income,  depending  on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. Currently, the Company does not use derivatives.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and No. 142,
"Goodwill  and Other  Intangible  Assets."  Under the new  rules,  goodwill  and
indefinite lived  intangible  assets are no longer  amortized,  but are reviewed
annually for impairment. Separable intangible assets that are not deemed to have
an indefinite  life will continue to be amortized  over their useful lives.  The
amortization  provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired  after June 30, 2001.  With respect to goodwill and  intangible  assets
acquired prior to July 1, 2001, the Company will apply the new accounting  rules
beginning October 1, 2002. Application of the nonamortization  provisions of the
Statement  is expected  to result in an increase in net income of $77,000  ($.02
per  share)  per year.  The  Company  will  perform  the  first of the  required
impairment  tests of  goodwill  and  indefinite  lived  intangible  assets as of
October 1, 2002 and has not yet  determined  what the effect of these tests will
be on the earnings and financial position of the Company.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of LongLived  Assets." SFAS No. 144 supercedes  FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and also  supercedes the accounting and reporting  provisions of
APB Opinion No. 30, "Reporting the Results of  Operations-Reporting  the Effects
of  Disposal  of a  Segment  of  a  Business,  and  Extraordinary,  Unusual  and
Infrequently  Occurring Events and  Transactions," for segments of a business to
be disposed of. Among its many provisions,  SFAS No. 144 retains the fundamental
requirements  of both  previous  standards,  however,  it  resolves  significant
implementation  issues  related  to FASB  Statement  No.  121 and  broadens  the
separate  presentation  of  discontinued  operations  in  the  income  statement
required by APB Opinion No. 30 to include a component of an entity  (rather than
a segment of a  business).  The  provisions  of SFAS No. 144 are  effective  for
financial  statements  issued for fiscal years beginning after December 15, 2001
with early  application  encouraged.  The  Company  does not  believe,  based on
current circumstances, the effect of adoption of SFAS No. 144 will be material.


                                     - 20 -
<PAGE>

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.

STOCK OPTIONS

In accordance with Statement of Financial Accounting Standards No. 123 (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 Accounting  Principles Board No. 25, "Accounting for Stock Issued
to Employees."

RECLASSIFICATIONS

Certain  amounts in the 2000  financial  statements  have been  reclassified  to
conform to the 2001 presentation.

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 and convertible preferred shares,
which are assumed to be converted.  The dilutive effect of employee and director
options to purchase common shares was to increase the weighted average number of
common  shares  outstanding  by  35,878  and  170,031  shares  in 2001 and 1999,
respectively.  There was no dilutive effect of employee and director  options to
purchase common shares for 2000.

3.   ACQUISITIONS

Effective  October 1, 1999,  the Company  acquired  all of the capital  stock of
T.P.S., Inc. for cash approximating $400,000 and $740,000 in assumption of debt.
The  acquired  business  provides  toxicology  services  to  the  pharmaceutical
industry.

The acquisition  was accounted for using the purchase method of accounting,  and
the  results of  operations  have been  included in the  consolidated  financial
statements  since the  effective  date of  acquisition.  The purchase  price was
allocated  to the net assets  acquired  based upon the fair market  value at the
date of acquisition.

On an unaudited pro forma basis,  revenue,  net income and net income per common
share (diluted) for the years ended September 30, 1999 was $21,790,000, $194,000
and $0.04.  This pro forma data presents the consolidated  results of operations
as if the  acquisition  had occurred on October 1, 1998,  after giving effect to
certain adjustments, increased interest expense and related income tax effects.

The pro forma  results have been prepared for  comparative  purposes only and do
not purport to indicate  the results of  operations  which would  actually  have
occurred had the acquisition been in effect on the date indicated,  or which may
occur in the future.



                                     - 21 -
<PAGE>


Pro forma  amounts for the year ended  September  30, 1999 were  computed  using
financial  data for T.P.S.,  Inc.  for the year ended  December 31 as it was not
practicable to determine the September 30 year-end results.

4.   INVENTORIES

Inventories at September 30 consisted of the following:

                                      2001            2000
                                      ----            ----

          Raw materials$        $ 1,322,182       $ 1,288,121
          Work in progress          302,706           374,950
          Finished goods            876,646           671,361
                                -----------       -----------
                                  2,501,534         2,334,432
          LIFO  reserve            (110,453)          (99,788)
                                -----------       -----------
                                $ 2,391,081       $ 2,234,644
                                ===========       ===========

5.   DEBT ARRANGEMENTS

The Company  has a revolving  line of credit,  which  expires  April 1, 2002 and
allows  borrowings  of  up  to  $3,500,000.  Interest  accrues  monthly  on  the
outstanding  balance at the banks  prime  rate minus 25 to plus 75 basis  points
(5.25% at September  30, 2001) or at the London  Interbank  Offered Rate (LIBOR)
plus 200 to 300 basis points, as elected by the Company,  depending upon certain
financial  ratios.  The  line is  collateralized  by  inventories  and  accounts
receivable and requires the Company to maintain certain  financial  ratios.  The
Company  pays a fee equal to 0.125 to 0.5 basis  points,  depending  on  certain
financial  ratios,  on the unused portion of the line of credit. As of September
30, 2001 and 2000,  interest on the entire outstanding  balance was based on the
prime  rate minus 25 basis  points  and the prime  rate  minus 50 basis  points,
respectively.  The balance  outstanding  on this line of credit at September 30,
2001 was $236,000.

On June 24, 1999 the Company  obtained a $3,500,000  commercial  mortgage with a
bank. The mortgage note requires 59 monthly  principal  payments of $19,444 plus
interest,  followed  by a final  payment  for the  unpaid  principal  amount  of
$2,352,804  due June 24, 2004.  Interest is charged at the one-month  LIBOR rate
plus 200 basis points (5.58% at September 30, 2001).

Cash  interest  payments of $329,544,  $498,513 and $287,058  were made in 2001,
2000 and 1999,  respectively.  Cash interest payments for 1999 included interest
of $64,833 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.

6.   LEASE ARRANGEMENTS

The  Company has  capital  lease  arrangements  to finance  the  acquisition  of
equipment.  Future minimum lease payments,  based upon scheduled  payments under
the lease arrangements, as of September 30, 2001, are as follows:

        2002                              $ 307,494
        2003                                302,215
        2004                                126,932
                                          ---------
        Total minimum lease payments        736,641
        Amounts representing interest       (73,242)
                                          ---------
        Present value of minimum lease
          payments                          663,399
        Less current portion               (261,123)
                                          ---------
                                          $ 402,276
                                          =========


                                     - 22 -
<PAGE>


The total amount of property  and  equipment  capitalized  under  capital  lease
obligations as of both September 30, 2001 and 2000 was  $1,917,625.  Accumulated
amortization  on capital  leases at September 30, 2001 and 2000 was $855,100 and
$668,852, respectively.

The Company  leases  office  space under a  noncancelable  operating  lease that
terminates in 2004. This lease contains renewal options ranging from one to five
years.  Total rental expense was $22,903,  $32,499 and $33,849 in 2001, 2000 and
1999, respectively.

Future minimum lease payments at September 30, 2001 are as follows:

                  2002          $ 19,890
                  2003            19,890
                  2004             3,315
                                --------
                                $ 43,095

7.   INCOME TAXES

<TABLE>
<CAPTION>
Significant  components of the Company's  deferred tax liabilities and assets as
of September 30 are as follows:

                                              2001            2000
                                              ----            ----
      <S>                                  <C>             <C>
      Deferred tax liabilities:
        Tax over book depreciation         $ 1,383,003     $ 1,226,170
        Deferred DISC income                   170,321         170,321
                                           -----------     -----------
      Total deferred liabilities             1,553,324       1,396,491
      Deferred tax assets:
        Inventory pricing                      123,008         117,636
        Accrued vacation                       155,935         154,982
        Tax credit carry forward                32,587         205,000
        Other-net                               17,466          56,858
        Foreign net operating loss             484,314         396,697
                                           -----------     -----------
      Total deferred tax assets                813,310         931,173
      Valuation allowance for
        deferred tax assets                   (484,314)       (396,697)
                                           -----------     -----------
      Net deferred tax assets                  328,996         534,476
                                           -----------     -----------
      Net deferred tax liabilities         $ 1,224,328     $   862,015
                                           ===========     ===========
</TABLE>

<TABLE>
<CAPTION>
Significant  components  of the  provision  (benefit)  for  income  taxes are as
follows:

                               2001              2000           1999
                               ----              ----           ----
       <S>                  <C>             <C>             <C>
       Current:
         Federal            $   680,469     $  (245,378)    $  146,471
         State                  297,368          51,405         99,129
                            -----------     -----------     ----------
       Total current            977,837        (193,973)       245,600
       Deferred:
         Federal                337,601        (230,925)        25,581
         State                   24,712          (6,405)         6,320
                            -----------     -----------     ----------
       Total deferred           362,313        (237,330)        31,901
                            -----------     -----------     ----------
                            $ 1,340,150     $  (431,303)    $  277,501
                            ===========     ===========     ==========
</TABLE>

                                     - 23 -
<PAGE>


<TABLE>
<CAPTION>
The effective income tax rate varied from the statutory  federal income tax rate
as follows:

                                                    2001    2000     1999
                                                    ----    ----     ----
<S>                                                <C>     <C>       <C>
Statutory federal income tax rate                  34.0%    34.0%    34.0%
Increases (decreases):
  Amortization of goodwill and
    other nondeductible expenses                    0.9     (0.6)     2.9
  Benefit of foreign sales corporation, net        (0.9)     1.5     (5.7)
  State income taxes, net of federal tax benefit    5.8     (1.6)     8.2
  Research and development credit                  (1.0)     ---     (7.2)
  Nondeductible foreign losses                      3.4    (11.5)     1.1
  Other                                             0.9      2.0     (0.5)
                                                   43.1%    23.8%    32.8%
</TABLE>

In fiscal 2001, 2000 and 1999, the Company's foreign operations generated a loss
before income taxes of $359,297, $612,496 and $26,771, respectively.

Payments made in 2001,  2000 and 1999 for income taxes  amounted to  $1,095,000,
$67,000 and $212,400, respectively.

The Company has foreign net operating loss carryforwards that begin to expire in
fiscal 2021.

8.   STOCK OPTION PLANS

During fiscal 1989,  the Company  established  an Outside  Director Stock Option
Plan whereby options to purchase  shares of 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 the
grant. The plan terminated on January 1, 1999.

During fiscal 1990, the Company  established an Employee  Incentive Stock Option
Plan whereby options to purchase  shares of 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 the
grant. The plan terminated in 2000.

The Company adopted new stock option plans,  discussed below, in connection with
its initial  public  offering  and  accordingly  does not plan to grant any more
options pursuant to the plans discussed above.

During  fiscal  1998,  the Company  established  an Employee  Stock  Option Plan
whereby options to purchase shares of 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.

During fiscal 1998,  the Company  established  an Outside  Director Stock Option
Plan whereby options to purchase  shares of 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.



                                     - 24 -
<PAGE>


<TABLE>
<CAPTION>
A summary of the Company's stock option activity and related information for the
years ended September 30 is as follows:

                                2001                       2000                       1999
                         -------------------        -------------------        -------------------
                                    WEIGHTED                   WEIGHTED                   WEIGHTED
                                    AVERAGE                    AVERAGE                    AVERAGE
                                    EXERCISE                   EXERCISE                   EXERCISE
                         OPTIONS     PRICE          OPTIONS     PRICE          OPTIONS     PRICE
                         -------    --------        -------    --------        -------    --------
<S>                      <C>         <C>            <C>         <C>            <C>         <C>
Outstanding -
  beginning of year      134,235     $4.27          206,299     $3.35          164,343     $2.70
Exercised                 (6,771)     1.65          (48,296)     0.52          (19,030)     0.96
Granted                      ---       ---            5,000      2.88           73,000      4.25
Terminated                (2,500)     5.00          (28,768)     3.75          (12,014)     3.73
Outstanding  -
  end of year            124,964     $4.39          134,235     $4.27          206,299     $3.35
</TABLE>

<TABLE>
<CAPTION>
                                    WEIGHTED
                    NUMBER           AVERAGE       WEIGHTED        NUMBER         WEIGHTED
  RANGE OF       OUTSTANDING        REMAINING       AVERAGE      EXERCISABLE       AVERAGE
  EXERCISE       SEPTEMBER 30,     CONTRACTUAL     EXERCISE     SEPTEMBER 30,     EXERCISE
   PRICES            2001             LIFE          PRICE           2001            PRICE
------------     -------------     -----------     --------     -------------     --------
<S>                 <C>               <C>            <C>          <C>               <C>
$1.01 - 1.50          2,271           0.28           $1.33         2,271            $1.33
$1.51 - 2.10         36,943           1.47           $1.70        36,943            $1.70
$2.11 - 8.00         85,750           6.85           $5.64        33,000            $5.95
                    -------                                       ------
                    124,964                                       72,214
                    =======                                       ======
</TABLE>

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                   5.50%
  Dividend yield                            0.00%
  Volatility factor of the expected market
    price of the Company's common stock     0.53 (0.53 in 2000, 0.43 in 1999)
  Expected life of the options (years)      7.0

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.


                                     - 25 -
<PAGE>


The Company's pro forma information giving effect to the estimated  compensation
expense related to stock options is as follows:

                                             2001            2000          1999
                                             ----            ----          ----
Pro forma net income (loss)             $1,746,501     $(1,415,284)     $504,268
Pro forma net income (loss) per share   $     0.38     $     (0.31)     $   0.11

The weighted  average fair value of options  granted was $1.64 and $2.29 in 2000
and 1999, respectively. No options were granted in 2001.

9.   RETIREMENT PLAN

Effective July 1, 1984, 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. 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 18% of the  participant's  annual wages.  The Company
made no  discretionary  contributions  under  the plan in 2001,  2000 and  1999.
Contribution expense was $324,674, $256,107 and $227,022 in 2001, 2000 and 1999,
respectively.

10.  SEGMENT INFORMATION

The  Company  operates  in two  principal  segments -  analytical  services  and
analytical products.  The Company's analytical services unit provides analytical
chemistry 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. The accounting policies of theses segments are the same as those
described in the summary of significant accounting policies.

<TABLE>
<CAPTION>
OPERATING  SEGMENTS
                                                 YEAR ENDED SEPTEMBER 30,
                                                 ------------------------
                                            1999         2001         2000
                                            ----         ----         ----
                                                    (in thousands)

<S>                                      <C>          <C>          <C>
REVENUE
Service                                  $ 15,202     $ 10,999     $  9,993
Product                                    10,073        8,224        9,858
Total revenue                            $ 25,275     $ 19,223     $ 19,851

OPERATING  INCOME (LOSS)
Service                                  $  2,629     $   (409)    $  2,075
Product                                       861         (783)      (1,114)
Total operating income (loss)               3,490       (1,192)         961
Corporate expenses                           (383)        (621)        (114)
Income (loss) before income taxes        $  3,107     $ (1,813)    $    847

IDENTIFIABLE ASSETS
Service                                  $ 18,396     $ 17,772     $ 16,523
Product                                     9,581        9,125        9,798
Total assets                             $ 27,977     $ 26,897     $ 26,321

</TABLE>

                                     - 26 -
<PAGE>


<TABLE>
<CAPTION>
                                                 YEAR ENDED SEPTEMBER 30,
                                                 ------------------------
                                            2001         2000         1999
                                            ----         ----         ----
                                                    (in thousands)

<S>                                      <C>          <C>          <C>
DEPRECIATION AND AMORTIZATION
Service                                  $  1,242     $  1,218     $    912
Product                                       520          418          366
Total depreciation and amortization      $  1,762     $  1,636     $  1,278

CAPITAL EXPENDITURES
Service                                  $  1,584     $  1,269     $  3,285
Product                                        89          304          769
Total capital expenditures               $  1,673     $  1,573     $  4,054


GEOGRAPHIC INFORMATION
                                                 YEAR ENDED SEPTEMBER 30,
                                                 ------------------------
                                            2001         2000         1999
                                            ----         ----         ----
                                                    (in thousands)

Sales to external customers:
North America                            $ 20,536     $ 13,891     $ 13,012
Pacific Rim:
  Japan                                       242          580          716
  Other                                       660          232          695
Europe                                      2,337        2,317        2,776
Other                                       1,500        2,203        2,652
                                         $ 25,275     $ 19,223     $ 19,851

Long-lived assets:
North America                            $ 18,691     $ 18,467     $ 16,991
Europe                                      1,416        1,575        1,609
                                         $ 20,107     $ 20,042     $ 18,600
</TABLE>

                                     - 27 -
<PAGE>


MAJOR CUSTOMERS

During 2001, 2000 and 1999, a major United States-based  pharmaceutical  company
accounted  for  approximately  18.9%,  21.0%  and  22.2%,  respectively,  of the
Company's total revenues and 23.6% and 16.4% of total trade accounts  receivable
at September 30, 2001 and 2000, respectively.

During 2001 and 2000, another major United States-based  pharmaceutical  company
accounted  for  approximately  11.7% and 12.2%,  respectively,  of the Company's
total  revenues  and 10.7%  and  13.8% of total  trade  accounts  receivable  at
September 30, 2001 and 2000, respectively.

11.  LITIGATION

In April 1997, CMA Microdialysis  Holding A.B. (CMA) filed an action against the
Company in the United  States  District  Court for the District of New Jersey in
which CMA alleged that the Company's  microdialysis  probes infringe U.S. Patent
No.  4,693,832.  During the quarter ended December 31, 2000, the Company settled
this case for an immaterial amount.

12.  COMMITMENT

During 2001, the Company  signed a letter of intent to expand  facilities at its
preclinical  site in Evansville,  Indiana.  The commitment is for  approximately
$2.5  million.  Construction  of the  facilities  expansion  is  expected  to be
completed in December 2002.


                                     - 28 -
<PAGE>


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, 2001 and 2000,  and the related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended September 30, 2001.  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, 2001 and 2000, and the  consolidated  results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  September 30, 2001 in conformity  with  accounting  principles  generally
accepted in the United States.

                                                 /s/ Ernst & Young LLP

Indianapolis, Indiana
November 1, 2001


                                     - 29 -
<PAGE>

CORPORATE INFORMATION

ANNUAL MEETING OF SHAREHOLDERS
February 21, 2002
West Lafayette, Indiana

AUDITORS
Ernst & Young LLP
Indianapolis, Indiana

TRANSFER AGENT
Corporate Trust Department
National City
Bank 1900 East 9th Street
Cleveland, Ohio 44114

COMMON SHARES

Bioanalytical  Systems,  Inc.  common  shares are traded on the Nasdaq  National
Market under the symbol BASI.

The following table sets forth by calendar quarter the high and low sales prices
of the common  shares on the Nasdaq  National  Market  System.  The  approximate
number of holders of common shares is 1,700.

        FISCAL         1 ST QTR.     2ND QTR.     3RD QTR.     4TH QTR.
        ------         ---------     --------     --------     --------

        2001
        High             2.781        3.875        9.040        13.900
        Low              2.125        2.313        3.000         5.000

        2000
        High             3.875        5.250        3.844         3.500
        Low              2.250        2.563        2.500         2.375

The Company  has not paid any cash  dividends  on its common  shares for the two
most recent fiscal years.  The Company has no intention to pay cash dividends in
the foreseeable future.

INQUIRIES

A copy of the Company's  2001 Form 10-K Annual Report filed with the  Securities
and Exchange Commission is available without charge upon written request.  Media
inquiries and requests for the 10-K and investor's kits should be directed to:

        Corporate Communications Director
        Bioanalytical Systems, Inc.
        2701 Kent Avenue
        West Lafayette,  IN 47906

USA  Inquiries  from  shareholders,   security  analysts,   portfolio  managers,
registered representatives and other interested parties should be directed to:

        Investor Relations
        Bioanalytical Systems, Inc.
        (765) 463-4527
        www.bioanalytical.com

<PAGE>

BOARD OF DIRECTORS
Peter T. Kissinger, Ph.D.
Chairman, President and Chief Executive Officer
Ronald E. Shoup, Ph.D.
President, BAS Analytics
Candice B. Kissinger
Senior Vice President, Marketing
William E. Baitinger
Special Assistant to the Vice President For Research,
Purdue  University
Michael K. Campbell  President and
Chief Executive Officer,
Powerway, Inc.
John A. Kraeutler
President and Chief Operating Officer,
Meridian Bioscience, Inc.
W. Leigh Thompson, Ph.D., M.D.
Chief Executive Officer,
Profound Quality Resources, Inc.


EXECUTIVE MANAGEMENT
Peter T. Kissinger,  Ph.D.
Chairman,  President and Chief Executive Officer
Ronald E. Shoup, Ph.D.
President,  BAS Analytics
Douglas P. Wieten
Chief Financial Officer and Treasurer
Vice President,  Finance
Candice B. Kissinger
Senior Vice President, Marketing
Craig S. Bruntlett, Ph.D.
Senior Vice President,
International Sales
Donnie A. Evans
Vice President, Engineering
Stephen Geary, Ph.D.
Vice President, U.S. Sales and Marketing
Lina L. Reeves-Kerner
Vice President, Human Resources
Michael P. Silvon, Ph.D.
Vice President, Business Development
Michelle L. Troyer
Corporate Controller

SCIENTIFIC ADVISORY BOARD
Daniel Armstrong, Ph.D.
R. Graham Cooks, Ph.D.
William R. Heineman, Ph.D.
Jean-Michel Kauffman, Ph.D.
Susan Lunte, Ph.D.
Mark Meyerhoff, Ph.D.
W. Leigh Thompson, Ph.D., M.D.
Patrick Murphy, Ph.D.
Douglas Morton, Ph.D.

<PAGE>

             BIOANALYTICAL SYSTEMS, INC. 800.845.4246 765.463.4527
                  WWW.BIOANALYTICAL.COM BAS@BIOANALYTICAL.COM