UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

       [X]     Quarterly Report Pursuant to Section      QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act of 1934OF THE SECURITIES EXCHANGE ACT OF 1934.

          For the quarterly period ended June 30,December 31, 2004

OR

       [   ]     Transition Report Pursuant to Section      TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange Act of 1934OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

          For the transition period from                                   to                                   

Commission File Number:  0-23357


BIOANALYTICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

INDIANA35-1345024
(State or other jurisdiction of
incorporation or organization)		(IRS Employer Identification No.)

2701 Kent Avenue
West Lafayette, IN
47906
(Address of principal executive offices)(Zip Code)
(765) 463-4527
(Registrant's telephone number,
including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes [X]     No [   ]

YES             NO    

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).      Yes [   ]     No [X]

YES             NO    

As of July 31, 2004,February 10, 2005, 4,869,502 common sharesCommon Shares of the registrant were outstanding.




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1  –

PAGE
NUMBER
PART 1IFINANCIAL INFORMATION

Item 1Condensed Consolidated Financial Statements
(Unaudited):

Condensed Consolidated Balance Sheets as of June
December 31, 2004 and September 30, 2004 and
September 30, 2003		3

Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended June 30,December 31, 2004 and 2003		4

Condensed Consolidated Statements of Cash Flows for the
NineThree Months Ended June 30,December 31, 2004 and 2003		5

Notes to Condensed Consolidated Financial Statements6

Item 2Management'sManagement’s Discussion and Analysis of Financial
Condition and
Results of Operations		109

Item 3Quantitative and Qualitative Disclosures
About Market Risk		1614

Item 4Controls and Procedures1614


PART IIOTHER INFORMATION

Item 6Exhibits and Reports on Form 8-K1715

SIGNATURES1816




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2  –

PART I - FINANCIAL INFORMATIONPart I.    Financial Statements
Item 1.    Condensed Consolidated Financial Statements


CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)thousands, except share data)


(Unaudited)
June 30, 2004
September 30,
2003
(Unaudited)
December 31,
2004
September 30,
2004
Assets              
Current assets: 
Cash and cash equivalents $778  $1,378 $1,394 $773 
Accounts receivable  
Trade  5,429  3,978   6,721  5,352 
Grants  13  13 
Unbilled revenues and other  1,085  954   1,628  1,086 
Inventories  1,833  2,055   1,720  1,570 
Deferred income taxes  465  465   469  469 
Refundable income taxes  167  84   368  603 
Prepaid expenses  589  397   923  503 
Total current assets  10,359  9,324   13,223  10,356 
Property and equipment, net  32,120  31,171   31,777  31,901 
Goodwill  1,659  984   1,445  1,445 
Intangible assets, net  2,259  2,778   2,407  2,491 
Debt issue costs  379  428   322  340 
Other assets  307  300   280262
Total assets $47,083 $44,985  $49,454 $46,795 
Liabilities and shareholders' equity  
Current liabilities:  
Accounts payable $3,157 $3,073  $1,106 $2,021 
Accrued expenses  995  1,245   2,569  2,332 
Customer advances  2,470  1,658   4,003  2,817 
Revolving line of credit  3,109  2,388   4,782  2,826 
Current portion of capital lease obligation  120  123   76  73 
Current portion of long-term debt  788  1,132   786  783 
Total current liabilities  10,639  9,619   13,322  10,852 
Capital lease obligation, less current portion  101  ---   60  80 
Long-term debt, less current portion  9,007  6,949   8,810  8,893 
Construction line of credit  ---  1,676 
Subordinated debt, long-term  5,231  5,188   4,829  5,188 
Deferred income taxes  2,251  1,827   2,362  2,362 
Shareholders' equity: 
Preferred shares: Authorized shares - 1,000, 
Shareholders equity: 
Preferred Shares: 
Authorized shares - 1,000,000 
Issued and outstanding shares - none  ---  ---   ---  --- 
Common shares, no par value: Authorized shares - 19,000, 
Issued and outstanding shares - 4,870 at June 30, 2004 
and 4,831 at September 30, 2003  1,177  1,168 
Common Shares: 
Authorized shares - 19,000,000 
Issued and outstanding shares - 4,869,502 at
December 31, 2004 and at September 30, 2004		  1,177  1,177 
Additional paid-in capital  11,263  11,122   11,263  11,263 
Retained earnings  7,500  7,498   7,699  7,295 
Accumulated other comprehensive loss  (86) (62)  (68) (315)
Total shareholders' equity  19,854  19,726   20,071  19,420 
Total liabilities and shareholders' equity $47,083 $44,985  $49,454 $46,795 

See accompanying notes to condensed consolidated financial statements.




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3  –

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)


Three Months Ended December 31,
Three Months Ended
June 30,
Nine Months Ended
June 30,
2004
2003
2004
2003
2004
2003
Service revenue  $7,684 $5,643 $19,270 $14,739   $7,290 $5,978 
Product revenue  2,948  2,231  8,789  7,059   2,404  2,799 
Total revenue  10,632  7,874  28,059  21,798   9,694  8,777 
Cost of service revenue  5,217  3,864  15,493  10,840   5,215  5,059 
Cost of product revenue  1,191  858  3,503  2,864   852  1,083 
Total cost of revenue  6,408  4,722  18,996  13,704   6,067  6,142 
Gross profit  4,224  3,152  9,063  8,094   3,627  2,635 
Operating expenses:  
Selling  672  557  1,963  2,199   576  626 
Research and development  260  305  801  996   219  246 
General and administrative  2,054  1,436  5,686  3,723   1,927  1,847 
Total operating expenses  2,986  2,298  8,450  6,918   2,722  2,719 
Operating income  1,238  854  613  1,176 
Operating income (loss)  905  (84)
Interest income  2  1  5  3   3  1 
Interest expense  (306) (148) (720) (396)  (275) (207)
Other income  21  20  39  79   6  16 
Gain (loss) on sale of property and equipment  (10) 49  (10) 81 
Income (loss) before income taxes  639  (274)
Income tax expense (benefit)  235  (144)
Net income (loss) $404 $(130)
Income (loss) before income taxes  945  776  (73) 943 
Income tax provision (benefit)  310  422  (75) 481 
Net income $635 $354 $2 $462 
Net income per share: 
Net income (loss) per share 
Basic $0.13 $0.08 $0.00 $0.10  $0.08 $(0.03)
Diluted $0.13 $0.08 $0.00 $0.10  $0.08 $(0.03)
Weighted common and common equivalent 
shares outstanding: 
Weighted average common shares outstanding 
Basic  4,870  4,605  4,857  4,595   4,869,502  4,831,874 
Diluted  5,150  4,609  4,866  4,616   4,931,724  4,831,874 

See accompanying notes to condensed consolidated financial statements.




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4  –

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


Nine Months Ended June 30,
Three Months Ended December 31,
2004
2003
2004
2003
Operating activities           
Net income $2 $462 
Adjustments to reconcile net income to net 
cash provided by operating activities: 
Net income (loss) $404 $(130)
Adjustments to reconcile net income (loss) to net 
cash used by operating activities: 
Depreciation and amortization  2,771  1,783   758  829 
(Gain) loss on sale of property and equipment  10  (81)
Interest on subordinated debt  193  --- 
Deferred income taxes  ---  242 
Deferred and refundable income taxes  235  (93)
Changes in operating assets and liabilities:  
Accounts receivable  (1,582) 605   (1,911) (845)
Inventories  222  255   (150) (148)
Prepaid expenses and other assets  (199) 153   (438) (288)
Accounts payable  84  (476)  (915) (27)
Income taxes  (261) (92)
Accrued expenses  (1,355) 1   237  126 
Customer advances  812  (141)  1,186  268 
Net cash provided by operating activities  697  2,711 
Net cash used by operating activities  (594) (308)
Investing activities  
Capital expenditures  (2,029) (4,077)  (532) (1,351)
Proceeds from sale of property and equipment  ---  1,023 
Payments for purchase of LC Resources, Inc. net of cash acquired  ---  (163)
Payments for purchase of PharmaKinetics Laboratories, Inc., net of cash acquired  ---  (816)
Net cash used by investing activities  (2,029) (4,033)  (532) (1,351)
Financing activities  
Borrowings on line of credit  9,629  3,826   3,052  3,611 
Payments on line of credit  (8,908) (5,955)  (1,096) (2,713)
Borrowings on construction line of credit  574  3,343   ---  574 
Payments on capital lease obligations  (3) (1,071)  (17) (69)
Borrowings of long-term debt, net of issuance costs  2,250  4,950 
Payments of long-term debt  (2,786) (3,658)  (439) (196)
Net proceeds from the exercise of stock options  ---  39   ---  --- 
Net cash provided by financing activities  756  1,474   1,500  1,207 
Effects of exchange rate changes  (24) (6)  247  (102)
Net increase (decrease) in cash and cash equivalents  (600) 146   621  (554)
Cash and cash equivalents at beginning of period  1,378  826   773  1,378 
Cash and cash equivalents at end of period $778 $972  $1,394 $824 

See accompanying notes to condensed consolidated financial statements.




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5  –

BIOANALYTICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.         Description of the Business and Basis of Presentation

Bioanalytical Systems, Inc. and its subsidiaries (“We,” the “Company” or “BASi”) engage in laboratory services and other services related to pharmaceutical development. We also manufacture scientific instruments for medical research, which we sell with related software for use in industrial, governmental and academic laboratories. Our customers are located throughout the world.

We have prepared the accompanying unaudited interim condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”), and therefore should be read in conjunction with our audited consolidated financial statements, and the notes thereto, included in our Form 10-K for the year ended September 30, 2003.2004. In the opinion of management, the condensed consolidated financial statements for the three and nine months ended June 30,December 31, 2004 and 2003 include all adjustments which are necessary for a fair presentation of the results of the interim periods and of our financial position at June 30,December 31, 2004. The results of operations for the three and nine months ended June 30,December 31, 2004 are not necessarily indicative of the results to be expected for the year ending September 30, 2004.2005.

All amounts in the condensed consolidated financial statements and the notes thereto are presented in thousands, except for share and per share data or where otherwise noted. Certain amounts in the September 30, 2004 Balance Sheet have been reclassified to conform to the presentation at December 31, 2004.

2.         Stock Based Compensation

At June 30,December 31, 2004, we had four stock-based employee and outside director compensation plans, which are described more fully in Note 9 in the Notes to the Consolidated Financial Statements in our Form 10-K for the year ended September 30, 2003.2004. Because all options granted under these plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant, we do not recognize any stock-based employee compensation cost in our financial statements. The following table illustrates the effect on net income (loss) and earnings (loss) per share had we applied the alternative fair value treatment of recognizing as stock-based employee compensation.

Three Months Ended
June 30,
Nine Months Ended
June 30,
2004
2003
2004
2003
Net income as reported  $635 $354 $2 $462 
Deduct: Total stock-based employee  
compensation expense determined under  
the fair value based method for all  
awards, net of related tax effects   (49) (5) (67) (15)
Pro forma net income (loss)  $586 $349 $(65)$447 
Earnings (loss) per share:  
   Basic - as reported  $0.13$0.08$0.00$0.10
   Basic - pro forma  $0.12$0.08$(0.01) $0.10
   Diluted-as reported  $0.13$0.08$0.00$0.10
   Diluted--pro forma  $0.12$0.08$(0.01) $0.10

2004
2003
Net income (loss) as reported  $404 $(130)
Deduct:  Total stock-based employee  
compensation expense determined under the  
fair value based method for all awards,  
net of related tax effects   (43) (6)
Pro forma net income (loss)  $361 $(136)
Earnings (loss) per share:  
   Basic and diluted - as reported  $0.08 $(0.03)
   Basic and diluted - pro forma  $0.07 $(0.03)

3.         Earnings per Share

We compute basic earnings per share using the weighted average number of common shares outstanding. We compute diluted earnings per share using the weighted average number of common and potential common shares outstanding. Potential common shares include the dilutive effect of shares issuable upon exercise of options to purchase common shares and upon conversion of convertible subordinated debt.shares. Shares issuable upon conversion of convertible subordinated debt have onlynot been included in the three months ended June 30, 2004, as they were not dilutive in any other period.dilutive.




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6  –

3.         Earnings per Share (continued)

The following table reconciles our computation of basic earnings per share to diluted earnings per share:

Three Months Ended
June 30,
Nine Months Ended June 30,
2004
2003
2004
2003
Shares:          
Basic shares   4,870  4,605  4,857  4,595 
  Effect of dilutive securities  
    Options   8  4  9  21 
    Convertible subordinated debt   272  ---  ---  --- 
Diluted shares   5,150  4,609  4,866  4,616 
 
Basic net income  $635 $354 $2 $462 
Diluted net income  $674 $354 $2 $462 
 
Basic earnings per share  $0.13 $0.08 $0.00 $0.10 
Diluted earnings per share  $0.13 $0.08 $0.00 $0.10 

Three Months Ended December 31,
2004
2003
 
Shares:      
Basic shares   4,869,502  4,831,874 
  Effect of dilutive securities  
    Options   62,222  --- 
    Convertible subordinated debt   ---  --- 
Diluted shares   4,931,724  4,831,874 
 
Basic and diluted net income (loss)  $404 $(130)
 
Basic earnings (loss) per share  $0.08 $(0.03)
Diluted earnings (loss) per share  $0.08  $(0.03)

4.         AcquisitionsNew Accounting Pronouncements

LC Resources, Inc.

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

In December, 13, 2002 we acquired LC Resources, Inc. (“LCR”), now BASi Northwest Laboratories, Inc., purchasing all of the outstanding shares of LCR for $1,999. The purchase price consisted of cash payments of $199 and issuance of $1,800 in 10% subordinated notes payable. We engaged an independent valuation firm to determineSFAS No. 123 (Revised) was issued dealing with Share-Based Payments. In general, this statement requires that companies compute the fair value of identifiable intangible assets.options and other stock-based employee incentives, and charge this value to operations over the period earned, generally the vesting period. The following table summarizes the fair valuesonly instruments we use that are governed by this statement are stock options for Directors and employees. The impact on reported results of the assets acquiredadoption of this statement, required for interim and liabilities assumed at the date of acquisition:

Current assets  $639 
Property and equipment   347 
Intangible assets   1,251 
Goodwill   561 
Total assets acquired   2,798 
 
Liabilities assumed   (799)
Net assets acquired  $1,999 

As of December 31, 2003 we recorded a deferred tax liabilityannual periods after June 15, 2005, is presented in the amount of $518 with a corresponding increasefootnote 2 above. The impact on operations in goodwill. The intangible assets arising from this transaction include $180 assigned to methodologies, $359 assigned to customer relationships and $712 assigned to the regulated facility/FDA compliant laboratory site. We estimated the economic useful lives of the acquired methodologies and customer relationships tofuture periods will be 5 years, using straight-line amortization, and determined that the acquired regulated facility/FDA compliant laboratory site is an indefinite-lived intangible asset not subject to amortization.




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5.         Acquisitions (continued)

PharmaKinetics Laboratories, Inc.

On May 26, 2003, we converted our $791 of convertible notes of PharmaKinetics Laboratories, Inc. (“PKLB”) into 4,992,300 shares of PKLB common stock, representing a 67% ownership interest in PKLB. On June 30, 2003, we purchasedby amortizing the remaining common stock and all preferred stock of PKLB through the exchange of 228,857 shares of the Company’s common stock valued at $1,179 and the issuance of $4,000 of 6% convertible notes due 2008. These notes plus any accrued interest are convertible into shares of the Company’s common stock at the holder’s option any time after June 1, 2004 at the conversion rate of sixteen dollars per sharevalue of our common stock.

The Company paid cash aggregating $1,506 (includingcurrently outstanding options, plus the value imputed to future option grants using the above purchase of convertible notes) representing acquisition costs anddescribed methods. There is no impact on cash advances made to PKLB from June 2002 through May 2003. PKLB was a publicly traded company based in Baltimore, Maryland, that provided clinical research and development services to the pharmaceutical and biotechnology industries in the development of prescription and non-prescription drug products. PKLB has been renamed BASi Maryland, Inc.flow.

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

Current assets  $626 
Property and equipment   6,448 
Intangible assets   1,311 
Goodwill   213 
Total assets acquired   8,598 
 
Liabilities assumed   (1,913)
Net assets acquired  $6,685 

During the fiscal quarter ended June 30, 2004, we concluded our valuation of the acquisition, primarily the assessment of intangible assets. Also during the quarter, we received a third party offer on the land and building, which we have accepted. We will lease a portion of the building for two years after the close under an operating lease. We have used the net sale value of the building in our final valuation. Property and equipment were increased by $127; intangible assets were decreased by $268, goodwill was increased by $158 and liabilities assumed were increased by $17 as a result of these changes.

During the nine months ended June 30, 2004, we recorded additional adjustments from our original estimates to reduce deferred revenue at the acquisition date by $189, record taxes on the revaluation of the basis of property of $86, and record acquisition costs of $48, resulting in reductions of intangible assets of $64 and goodwill of $4.

Of the $1,311 in value of the acquired intangible assets, $80 was assigned to methodologies, $626 was assigned to customer relationships and $605 has been assigned to the regulated facility/FDA compliant laboratory site. We estimated the economic useful lives of the acquired methodologies and customer relationships to be 5 years, using straight-line amortization, and determined that the acquired regulated facility/FDA compliant laboratory site is an indefinite-lived intangible asset not subject to amortization.

6.5.         Inventories

Inventories consisted of the following:

December 31,
2004
September 30,
2004
June 30,
2004
September 30,
2003
Raw materials  $1,137 $1,161   $1,090 $1,392 
Work in progress  310  338   257  196 
Finished goods  488  658   520  129 
  1,955  2,157   1,867  1,717 
Less LIFO reserve  (102) (102)  (147) (147)
 $1,833 $2,055  $1,720 $1,570 

6.         Subsequent Event

On January 5, 2005 we sold the building which houses our clinical research unit in Baltimore for a $6,500 cash selling price, with a three-year leaseback of approximately 85% of the space in the building for $800 annually, plus operating expenses, which approximates market rental. We will account for the transaction as a sale/leaseback transaction. The net cash received in the transaction, after expenses, approximated the carrying value of the building. The net proceeds of the sale were used to pay off our revolving credit facility and for working capital.




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7

7.         Segment Information

We operate in two principal segments — research servicesServices and research products.Products. Our Services segment provides research and development support on a contract basis directly to pharmaceutical companies. Our Products segment provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. Our accounting policies in these segments are the same as those described in the summary of significant accounting policies.policies found in Note 1 to Consolidated Financial Statements in our annual report on Form 10-K for the year ended September 30, 2004.

The following table presents operating results by segment:

Three Months Ended
June 30,
Nine Months Ended
June 30,
2004
2003
2004
2003
Operating income (loss):          
Services  $1,164 $546 $(581)$739 
Products   74  308  1,194  437 
Total operating income   1,238  854  613  1,176 
Corporate expenses   (293) (78) (686) (233)
Income (loss) before income taxes  $945 $776 $(73)$943 

8.         Related Party Transactions

Prior to the acquisition of PKLB in June 2003, a current director of the Company who had been a director of PKLB made loans to PKLB to support their cash needs under the terms of a $350 convertible promissory note (“Old Note”) dated November 22, 2002. On December 31, 2003, the Company issued a $350 8% convertible note payable (“New Note”) in exchange for the Old Note. The New Note is convertible into the Company’s common shares at a price based upon the market price of the common shares at the time of the conversion and is scheduled to mature on June 1, 2005. On that same day, the Company prepaid $100 of the outstanding principal amount of the New Note, plus approximately $31 in accrued interest, and the holder converted $150 of the New Note into 38 of the Company’s common shares. The Company issued the holder a new 8% note due June 1, 2005, on substantially the same terms as the New Note, for the remaining $100 principal amount.

9.         Long-Term Debt

In May, 2004 the Company converted its construction loans totalling $2,250 into long-term debt under the terms of the initial loans. The loan bears interest at the rate of 5.7% through June 1, 2007 and matures October 29, 2012. Monthly payments total $16 for principle and interest.

Three Months Ended
December 31,
2004
2003
Operating income (loss):      
Services  $611 $(710)
Products   294  626 
Total operating income (loss)   905  (84)
Corporate expenses   (266) (190)
Income (loss) before income taxes  $639 $(274)



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8

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q may contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and/or Section 21E of the Securities Exchange Act of 1934, as amended. Those statements may include, but are not limited to, discussions regarding BASi’s intent, belief or current expectations with respect to (i) BASi’s strategic plans; (ii) BASi’s future profitability; (iii) BASi’s capital requirements; (iv) industry trends affecting the Company’s financial condition or results of operations; (v) the Company’s sales or marketing plans; or (vi) BASi’s growth strategy. Investors in BASi’s Common Shares are cautioned that reliance on any forward-looking statement involves risks and uncertainties, including the risk factors contained in Exhibit 99.1 to BASi’s annual report on Form 10-K for the year ended September 30, 2003.2004. Although the Company believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based upon those assumptions also could be incorrect. In light of the uncertainties inherent in any forward-looking statement, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that BASi’s plans and objectives will be achieved.



All dollar amounts presented in this discussion and analysis are presented in thousands, except per share and share data.

GENERAL        

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

Developments withinIn our Annual Report on Form 10-K for the industriesyear ended September 30, 2004, we servecommented on the impacts and anticipated impacts developments in the pharmaceutical industry have on our businesses, as well as some of the potential risks. Those comments are still applicable, and are found under “General” in Part I, Item 2 of that report.

The fallout from Merck’s recall of Vioxx, and related questions about that class of therapeutics, has thus far been confusing and speculative. There already was considerable discussion regarding making the results of clinical trials of pharmaceutical companies publicly available in the United States, and we believe the Vioxx recall will add to pressure for public disclosure. We cannot predict at this time the impact any public disclosure requirements will have on our business; however, it appears likely that the amount of information that the pharmaceutical industry will be required to submit will increase, requiring additional effort and cost for its presentation and interpretation, as well as increased quality control procedures over the information. Increased burdens on the pharmaceutical industry are likely to increase the amount of services we can supply to our customers, although it is likely to increase our costs as well. We have seen no impact from these developments to date.

A number of very successful pharmaceutical products are nearing the end of their patent lives. We have observed a direct,significant amount of attention being given to the rate of approval of new treatments compared to the expiration of exclusivity of old products. The relative weakness of this “pipeline” of new products is generally viewed by analysts of this market as requiring increased effort by the industry in developing new products. Additionally, the pharmaceutical industry is under pressure to reduce fixed costs to improve future operating results. Both of these developments are viewed as creating demand for outsourced services such as those we provide. Our ability to capitalize on these developments will be dependent on successful sales efforts, as well as our ability to continue to meet the quality of service standards of the markets we serve.

Both government regulation of the pharmaceutical industry and sometimesgovernment programs related to health care, drug availability and cost, and drug importation, continue to impact the operations of the pharmaceutical industry, our principal market. Our first quarter, which ended December 31, 2004, also coincided with a general election during which these issues were included in the national discussion. We have not experienced any noticeable change in our markets as a result of any recent changes in government actions. We expect these issues, and perhaps others, will continue to be part of the political debate and the subject of proposed reform, which could have a material impact on our operations. One significant development in the past decade has been the continuing consolidation among large pharmaceutical corporations. We believe that, on the whole, this consolidation should have a positive impact on our business, as these increasingly larger pharmaceutical companies will devote their internal resources, our main competitor, to only those drug candidates with the potential to have a material impact on their operations, and will outsource more of their lesser opportunities. Additionally, many drug candidates will not meet the financial hurdles established by the major pharmaceutical companies, and will be developed by smaller, specialty pharmaceutical companies that do not possess internal capabilities to test and analyze the drug candidate, or have the capability to scientifically monitor the product once approved. Offsetting those potential positive impacts, the major pharmaceutical companies tend to reevaluate their development programs after major acquisitions, which sometimes cause them to defer, or cancel, work that we were scheduled to perform. We are also at risk that a significant client for us may be acquired by a corporation that prefers to perform the work internally, or has a long-standing relationship with one of our competitors. We anticipate that as companies in our markets consolidate, our competitors will also consolidate, which will result in fewer, but much stronger, competitors for our business.

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

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




–  10  –

9

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

RESULTS OF OPERATIONS

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

Three Months Ended
June 30,
Nine Months Ended
June 30,
Three Months Ended
December 31,
2004
2003
2004
2003
2004
2003
Service revenue 72.371.768.767.6   75.2% 68.1%
Product revenue 27.728.331.332.4  24.8 31.9
Total revenue 100.0100.0100.0100.0  100.0 100.0
Cost of service revenue(a) 67.968.580.473.5  71.5 84.6
Cost of product revenue(a) 40.438.539.940.6  35.4 38.7
Total cost of revenue 60.360.067.762.9  62.6 70.0
Gross profit 39.740.032.337.1  37.4 30.0
Total operating expenses 28.129.230.131.7  28.1 31.0
Operating income 11.610.82.25.4
Operating income (loss)  9.3 (1.0)
Other (expense) (2.8)(1.0)(2.5)(1.0)  (2.7) (2.2)
Income (loss) before income taxes 8.89.8(0.3)4.4  6.6 (3.2)
Income tax expense (benefit) 2.95.4(0.3)2.2  2.4 (1.7)
Net income 5.94.40.02.2  4.2% (1.5)%

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

Three Months Ended June 30,December 31, 2004 Compared to Three Months Ended June 30,December 31, 2003

Service and Product Revenues

Revenues for the thirdWe increased our revenues in our first fiscal quarter ended June 30, 2004 increased 35% to $10.6 million compared to $7.9 million forof the thirdcurrent year by $917, or 10% over the comparable quarter last year. Service revenueRevenue from bioanalytical services provided in West Lafayette, IN and McMinnville, OR had increases wereof $518 and $572, respectively. The increase in West Lafayette was the result of significant contracts initiated in this quarter that were obtained in our last fiscal year, then delayed. The increase in McMinnville was the Company’s two acquisitions completed in fiscal 2003. Preclinical services capacity utilization and UK-based bioanalytical services (aided by a strong pound sterling that causes U.K. revenues to translate into more U.S. dollars), showed significant improvement for the quarter. Our Product revenues increased 32%, driven by strong salesresult of our Culex automated blood samplingeffort to balance the utilization of our facilities by moving services to sites with available capacity. We have increased our ability to do this by standardizing equipment, systems and procedures across our sites. We had a decline in product line.

Costrevenues of Revenues

Cost of revenues for the third quarter ended June 30, 2004 was $6.4 million or 60% of revenue$395 compared to $4.7 million, or 60% of revenue for the thirdsame quarter last year. The increaseThis is the result of an unusually large order for our Culex product in the first quarter of last fiscal year, which increased revenues by $500 last year. Revenues from our products among other customers for the comparable quarters increased in the current quarter.

Cost of Revenues

Our cost of revenues is related to the Company’s Services segment and is due to the inclusion of costs from operations acquired in fiscal 2003 that were not included in the prior year. Our cost ofservice revenues as a percentage of revenues improved thisto 71.5% in the current quarter, compared to the level of84.6% for the same period last year. A substantial portion of our cost of productive capacity (personnel, facilities and laboratory equipment) is relatively fixed. When we increase revenues, these costs are spread over a larger revenue amount, resulting in improvement of our margins as a percentage of sales. We also had open laboratory staff positions in the quarter that saved approximately $100 of costs (2% of cost of services). These positions will be filled in future periods. Our ability to allocate laboratory projects among locations also increases margins as it raises utilization of our capacity without increasing costs. Our cost of product revenue fluctuation is predominately a factor of sales volume. The variance in the relationship of these costs to revenues, 35.4% this quarter compared to 38.7% in the same quarter last year, is within the range of variations we experience from period to period as a result of higher utilization of our capacity. Future similar, or improved, margins are dependent on maintaining or improving volume, as we have significantly greater capacity than we didchanges in fiscal 2003. Higher utilization of capacityproduct mix.




10

Operating Expenses

Our selling expenses were down slightly in our Baltimore facility, acquired last year, impactedfirst fiscal quarter compared to the margin improvementsame quarter in the current quarter. The costs of the underutilized capacity in our Services segment are included in cost of services, withprior year, which was the result that those costs remain fairly constant, regardless of a reduction in the number of people devoted full time to sales. We expect our Services volume. The cost of product revenue as a percentage of product revenue continues within our planned range, impacted mainly by the mix of product.




–  11  –

Operating Expenses

Sellingselling expenses for the three months ended June 30, 2004 increased 21%full fiscal year to $672,000 from $557,000 for the three months ended June 30, 2003. Research and development expenses, which are net of grant reimbursements, for the three months ended June 30, 2004 decreased 15%be similar to $260,000 from $305,000 for the three months ended June 30, 2003. These changes were in line with our expectations and reflect, in the case of selling expenses, our efforts to increase our utilization of our capacity, and with regard tolast fiscal year. Our expenditures on research and development our current focus on improving operationslikewise had a slight decline due to the timing of activities relating to new products and services. We do not currently anticipate a significant change in the overall level of our recent acquisitions, reducing our expenditures in research and development. For the near term, we intend to focus our attention on improving the operationsdevelopment expenditures from those of our acquired companies, balancing our human and financial resources between operations and new development opportunities.

last full fiscal year. General and administrative expenses for the three months ended June 30,December 31, 2004 increased 43%4% to $2,054,000,$1,927, from $1,436,000$1,847 for the three months ended June 30,December 31, 2003. This increase is primarily attributablethe result of annual pay increases that averaged 4% for the company and higher accruals for audit and consulting fees to comply with Sarbanes-Oxley requirements in the Company’s acquisitionscurrent year, offset by a reduction in fiscal 2003, and includes additional recruitment and compensation costsoutside consultants' fees from last year when consultants were utilized to addfill key personnel.financial roles on an interim basis.

Other (Expense)

InterestOur interest expense increased 107%33% to $306,000$275 in the three months ended June 30, 2004current fiscal quarter from $148,000$207 in the comparable quarter of the prior year. ThisThe increase is dueattributable to a) approximately $2,000 higher average outstanding borrowings from the completion of construction projects that were in process in the prior year, b) the expensing of interest expense on those projects as they were placed in service, compared to the subordinated debt issuedcapitalization of that interest during construction, and c) the increase in connection with the Company’s 2003 acquisitions and increasesinterest rates. We elected in long-term debt due to facility expansions at its Evansville and West Lafayette sites. We also decidedJune, 2004 to fix our mortgage borrowing interest ratesrate on our $9,000,000approximately $9,000 of mortgage financing for a three-year period at 5.7% through May, 2007 as monetary policy tightens. This increaseper annum, under the terms of 1.4% overthe mortgage. That decision had the immediate effect of raising the cost of borrowed funds, but limits our prior floating rate added approximately $20,000 in the quarter. This was done to limit interest rate risk.exposure for the three-year period.

Income Taxes

We computed our tax benefitprovision using an overall effective tax rate on domestic earnings of 40%, which is our estimate of our combined federal and local tax rates for the three months ended June 30, 2004current year. We made no provision for income taxes on net pre-tax earnings of 32.8% compared to 54.4% for$47 in the three months ended June 30, 2003. This decline in effective rate is the result of profitable operations in our United Kingdom, subsidiaries, whereas we expect our current year's earnings there will not exhaust prior periodyears' loss carryforwards are being recognized as utilized.carry-forwards.

Net Income

As a result of the above factors, we earned $635,000$404 ($.13.08 per share basic and $.12 per share diluted) in the quarter ended June 30,December 31, 2004, compared to $354,000a loss of $130 ($.08.03 per share, both basic and diluted) in the same period last year.

Nine Months Ended June 30, 2004 Compared to Nine Months Ended June 30, 2003

General

Our current year-to-date operations reflect the operations The computation of our two acquisitions of last year for the full period. Prior year results included operations of our Oregon acquisition from December 12, 2002, and our Baltimore acquisition from May 26, 2003. Both of these acquisitions contributed to our losses in prior periods of the current year. Neither of these operations were profitable in the comparable period last fiscal year, however, because of inclusion for the full periodaverage outstanding shares in the current year, current fiscal year operating results have been impacted more than last year.

Service and Product Revenues

Revenues forperiod included the nine months ended June 30, 2004 increased 29% to $28.0 million compared to $21.8 million fordilutive effect of options whereas options were anti-dilutive in the nine month period last year. Service revenue increases were primarily the result of the Company’s two aforementioned acquisitions. Product revenues increased 25% as a result of the success of our Culex product line.




–  12  –

Cost of Revenues

Cost of revenues for the nine months ended June 30, 2004 was $19.0 million or 68% of revenue compared to $13.7 million, or 63% of revenue for the samesimilar period last year. The increase in costeffect of revenues is primarily related to the Company’s Services segment and is due to the acquisitions in fiscal 2003. The increase in cost of revenue as a percentage of revenue is impacted by operating inefficiencies in the Services segment as the Company integrates the acquired businesses, and by underutilization of capacity. This impact was most severe in the first two quarters of fiscal 2004. We devoted significant manpower to changing site infrastructure and absorbing new job methodologies, which reduced billable work. During the first quarter of the current fiscal year, we absorbed the costs of a client project overrun, new staff in training, and lower than optimal capacity utilization. The product segment cost of revenue as a percentage of product revenue was in line with our historical experience.

Operating Expenses

Selling expenses for the nine months ended June 30, 2004 decreased 11% to $1,963,000 from $2,199,000 for the nine months ended June 30, 2003. Research and development expenses, which are net of grant reimbursements, for the nine months ended June 30, 2004 decreased 20% to $801,000 from $996,000 for the nine months ended June 30, 2003. As described in the three month discussion above, these decreases are primarily attributable to the Company’s efforts to control expenses.

General and administrative expenses for the nine months ended June 30, 2004 increased 53% to $5,686,000, from $3,723,000 for the nine months ended June 30, 2003. The principal reasons for this increase are the expenses of the acquired operations, in addition to significant consulting expenses for interim financial management while the Company recruited new personnel (accomplished in the third quarter of this fiscal year).

Other (Expense)

Interest expense increased 82% to $720,000 in the nine months ended June 30, 2004 from $396,000 in the comparable period of the prior fiscal -year. This increase is due to interest expense on the subordinated debt issued in connection with the Company’s fiscal 2003 acquisitions and increases in long-term debt due to facility expansions at its Evansville and West Lafayette sites.

Income Taxes

Our tax provision for the nine months ended June 30, 2004 is the resultconversion of our estimate of income for the full year. As of June 30, 2004, we had lossesoutstanding convertible subordinated debentures was anti-dilutive in the U.S., which we project can be utilized against fourth quarter income. These losses were offset by earnings in the U.K., where we have loss carryforwards to offset our current income. We are recognizing the benefit of that carryforward as it is realized, due to the uncertainties of its realization, resulting in no net provision in the current period for U.K. profits. The nine month benefit from taxes reflects the projection that we will be profitable for the full year in the U.S., while utilizing unrecorded benefits in the U.K. Our fourth quarter and full year provision for taxes could be impacted by failure to attain these projections.both years.

Net Income

As a result of the above, we experienced net earnings of $2,000 ($0.00 earnings per share, both basic and diluted) for the first nine months of the current fiscal year, compared to net income in the prior fiscal year of $462,000 ($.10 income per share, both basic and diluted) .




–  13  –

LIQUIDITY AND CAPITAL RESOURCES

Comparative Cash Flow Analysis

Since its inception, BASi’sBASi's principal sources of cash have been cash flow generated from operations and funds received from bank borrowings and other financings. At June 30,December 31, 2004, BASiwe had cash and cash equivalents of $778,000,$1,394, compared to cash and cash equivalents of $1,378,000$773 at September 30,December 31, 2003. Our cash receipts are immediately applied to our lineApproximately 40% of credit in the U.S., the result of which is that our cash balances are principallywere in the U.K. We monitor our U.K. cash needs to avoid currency conversion costs, which in the current interest rate environment can exceed interest. Our cash balance is therefore less significant than our available borrowing capacity.

Our net cash providedused by operating activities was $697,000$594 for the ninethree months ended June 30,December 31, 2004. Cash provided by operations during the nine months ended June 30, 2004 consisted of net profits of $2,000, non-cash charges against operations of $2,974,000 and a net increase in assets employed of $2,279,000 in current assets and liabilities. During the current nine month period, we maintained significant customer advance payments for work to begin after this period, which contributed $812,000 to cash flow. Our sales in the third quarter of our fiscal yearincreased business resulted in an increaseincreased investments in accounts receivable and inventories of $1,451,000 over our last year-end,$2,000. Our accounts payable at September 30, 2004 included amounts due on capital asset purchases, which was financed by utilizing our working capital credit facility.were subsequently paid, accounting for a significant portion of the cash used to reduce payables in the quarter. We had increases in customer deposits, again as a result of increased business activity, and increased accrued expenses which offset some of the cash used in operations.




11

Net cash used by investing activities decreased to $2,029,000$532 for the ninethree months ended June 30,December 31, 2004 from $4,033,000$1,351 for the ninethree months ended June 30,December 31, 2003. The current period’s investment is the result ofPrior year amounts include higher expenditures to complete facilities expansion in West Lafayette, Indiana and Evansville, Indiana, whileat two acquisitions in fiscal 2003 accounted forof our locations. We also paid down $439 of long-term debt.

We financed these activities with higher borrowings under our revolving credit facility, which were possible because of the higher levelasset base.

Capital Resources

As we disclosed in Note 6 to the prior comparable period.

Cash provided by financing activitiesCondensed Consolidated Financial Statements, subsequent to the end of the quarter, we sold our building in Baltimore for the nine months ended June 30, 2004 was $756,000 due to additional borrowings from$6,500, and signed a three-year leaseback for a substantial portion of its space. As a result, we paid off amounts outstanding under our lines of credit, offset by payments on long term debt and leases. In the nine months ended June 30, 2003, the Company refinanced its existing revolving line of credit, and term loanretained approximately $2,000 of cash.

A condition of our leaseback was the securing of a substantial portion of our lease obligation with a three year irrevocable letter of credit issued to the purchaser. The letter of credit is for $2,800 the first year, $2,000 the second year, and secured new financing$1,000 the final year. In order to arrange this letter of credit, we extended our $6,000 revolving credit agreement with our bank for facilities expansion and improvements. Throughoutthree additional years to December 31, 2007.

The letter of credit reduces the amount of funds available under the borrowing base formula. Our recent monthly average qualifying assets for our borrowing base have been approximately $4,000. The presence of this outstanding letter of credit could therefore substantially reduce the amount of cash available under our revolving credit facility.

We expect our total capital additions in the current fiscal 2003, BASi used these fundsyear to be in the range of $2,000 to $2,500. We expect to complete leases with our bank's leasing affiliate to finance its expansions$1,500 of this with capital leases with 3 and improvements in Evansville and West Lafayette and for other capital expenditures. As5 year terms.

Liquidity

We do not foresee the availability from the new facilities financings was expended by late fiscal 2003, the Company beganneed to support these expansions with available funds from operations and itsborrow extensively under our revolving credit line.

Capital Resources

Total expenditures by BASiagreement to finance current operations, except for property and equipment were $2,029,000 and $4,077,000 for the nine months ended June 30, 2004 and 2003, respectively. Expenditures for the first nine months of 2004 include the construction of the new early development facility in West Lafayette, accounting for the largest portion of these expenditures, and expenditures to bring the Baltimore facility to Company standards. Capital expenditures also include the purchaseperiods when rapid growth of new toxicologybusiness may necessitate amounts to finance the buildup of receivables and pathology softwareinventory. We are also considering the prepayment of approximately $1,100 of our subordinated long-term debt, as the interest rate we are paying is considerably higher than what we can earn in short-term investments. We will evaluate that possibility in the Company’s Evansville location that will improve efficiencysecond fiscal quarter.

At December 31, 2004, we had $1,394 in cash, and ensure future regulatory compliance. The software is in the validation process and is expected to be fully operational in November 2004. These expenditures were primarily funded by the Company’s construction line$1,200 of available borrowings under our revolving credit and revolving line of credit. Capital investments correspond to anticipated increases in research services to be provided by BASi. BASi expects to make other investments to expand its operations through internal growth, strategic acquisitions, alliances, and joint ventures as demand and capital allow.facility.

The Company has implemented a phased plan to improve the operations of its Baltimore clinical research unit and expects to fund the operations with cash provided from company-wide operations supplemented by its revolving line of credit. The planned improvements include renovation of the clinic, selectively updating equipment and hiring highly qualified, experienced management personnel. Improvements already completed and in process have had measurable effects on attracting new clients

BASi’sOur revolving line of credit expires September 30, 2006.December 31, 2007. The maximum amount available under the terms of the agreement is $6,000,000$6,000 with outstanding borrowings limited to the borrowing base as defined in the agreement. Interest accrues monthly on the outstanding balance at the bank’sbank's prime rate to prime rate plus 12525 basis points, or at the Eurodollar rate plus 200250 to 350300 basis points, as elected by BASi,at our election, depending upon the ratio of BASi’sour interest bearing indebtedness (less subordinated debt) to EBITDA. BASi paysWe pay a fee equal to 25 to 50 basis points depending upon the same financial ratio, on the unused portion of the line of credit. As of June 30, 2004, BASi had approximately $1.8 million of availability under this facility.




–  14  –

During 2002, the Company began expanding facilities at its site in West Lafayette, Indiana. Phase one of this facility became fully functional in the third fiscal quarter of 2004 at a cost of $3.4 million. Phases two and three will be completed as business justifies. Construction on the West Lafayette facilities is expected to have a total cost of $4.0 million when complete. The Company funded part of this expansion by obtaining a $2,250,000 construction loan with a bank. The loan expires November 1, 2012 and requires interest payments only until completion of the project in West Lafayette, Indiana. Interest is charged at the prime rate. The Company exhausted this construction loan in the first quarter of fiscal 2004 and converted the $2,250,000 to a term mortgage in May 2004. Future expenditures to complete the site will be funded by cash from operations, as new business is generated and facilities are filled, and the Company’s revolving line of credit.

We currently have a contract to sell our Baltimore facility, requiring a two-year leaseback of space in excess of our needs. The contract is subject to due diligence procedures by the buyer, which, in essence, makes the contract non-binding. Should the contract not be consummated, we had competing offers at similar terms. The net proceeds from this transaction should exceed $6,000,000, which we intend to use to retire $2,000,000 of subordinated debt and pay down our revolving line of credit, with the excess to be retained as working capital.

Cash Commitments

BASi isare required to make cash payments in the future on debt and lease obligations. The following table summarizes BASi’sBASi's contractual term debt, and lease obligations and other commitments at June 30,December 31, 2004 and the effect such obligations are expected to have on itsour liquidity and cash flows in future periods (amounts presented for 20042005 are those items required in the final fiscal quarter)three quarters):

Fiscal Year Ending September 30,
2005
2006
2007
2008
2009
After 2009
Total
2004
2005
2006
After
2006
Total
(in thousands)
Capital expenditures  $500 $--- $ ---  $--- $ ---  $-- $500 
Mortgage notes payable  $183 $390 $395 $6,171 $7,139   243 342 362 1,993 277 5,915  9,137 
Subordinated debt*  401  460  360  4,467  5,688 
Future debt obligations**  36  69  56  2,089  2,250 
Subordinated debt  100  360  360  4,468  ---  ---  5,288 
Capital lease obligations  62  74  80  ---  216   56  80  ---  ---  ---  ---  136 
Operating leases  327  529  518  274  1,648   1,243  1,982  1,524  610  ---  ---  5,358 
 $2,142 $2,764 $2,246 $7,071 $277 $5,919 $20,419 
 $1,009 $1,522 $1,409 $13,001 $16,941 



* Subordinated debt includes notes12

The above table does not include $4,782 outstanding under our revolving credit facility which was repaid on January 5, 2005. For further details on our indebtedness, see Note 7 to related parties.

** Future debt obligations is an estimate of payments uponour Consolidated Financial Statements included in our Annual Report on Form 10-K for the conversion in May 2004 of the current construction line of credit into a $2,250,000 mortgage note payable.year ended September 30, 2004.

The covenants in the Company’s credit agreement requiring the maintenance of certain ratios of interest bearing indebtedness (not including subordinated debt) to EBITDA and net cash flow to debt servicing requirements may restrict the amount the Company can borrow to fund future operations, acquisitions and capital expenditures. We have undertaken steps to improve our liquidity, operations and cash flow, with the objectives of reducing our debt, strengthening our financial position and meeting our financial covenants.

Based on our current business activities, we believe cash generated from our operations and amounts available under our existing credit facilities combined with the action plan described above,and cash on hand, will be sufficient to fund the Company’s working capital and capital expenditure requirements for the foreseeable future.




–  15  –

13

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

BASi’s primary market risk exposure with regard to financial instruments is changes in interest rates. TheBorrowings under the credit agreement between BASi and The ProvidentNational City Bank dated October 29, 2002 bearsJanuary 4, 2005 bear interest at a rate of either the bank’s prime rate to prime plus 0 to 12525 basis points, or at the Eurodollar rate plus 200250 to 350300 basis points, depending in each case upon the ratio of BASi’s interest-bearing indebtedness (less subordinated debt) to EBITDA, at BASi’s option. As discussed previously, we have taken steps to fix the interest rate on a significant amount of our debt through May, 2007. Historically, BASi has not used derivative financial instruments to manage exposure to interest rate changes. BASi estimates that a hypothetical 10% adverse change in interest rates would not affect the consolidated operating results of BASi by a material amount.

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

ITEM 4.    CONTROLS AND PROCEDURES

Based on their most recent evaluation, which was completed as of the end of the period covered by this report, BASi’sCompany’s Chief Executive Officer and Chief Financial Officer believe BASi’sthat, because of the situation described below, the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) are) were not effective in timely alerting BASi’s managementas of December 31, 2004 to materialensure that information required to be includeddisclosed by the Company in this Form 10-Q was recorded, processed, summarized and otherreported within the time periods specified by the Securities and Exchange Commission’s rules and forms. As disclosed in its annual report on form 10-K for the fiscal year ended September 30, 2004, the Company currently operates on accounting systems that are different at its various locations, and which are decentralized and obsolete. The Company is continuing in its efforts to standardize, centralize and update the accounting systems. The Chief Executive Officer and Chief Financial Officer believe that implementation of these new accounting systems will allow the Company to record, process, summarize and report accounting information to timely file its Exchange Act filings.reports. In the quarter ended December 31, 2004, the Company recruited new staff and took other steps to allow timely filing of this form 10-Q; nevertheless, the underlying deficiencies noted earlier will continue to exist until the implementation of new systems is completed.

ThereOther than the personnel addition cited above, there was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to marteriallymaterially affect, the Company’s internal control over financial reporting.




–  16  –

14

PART II — OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)        ExhibitExhibits

Number assigned
in Regulation S-K
Item 601		Description of Exhibits

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

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

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

(10)10.1Employment agreement dated March 18, 2004 with Michael R. Cox (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2004).

10.2Grant of qualified stock options dated April 1, 2004 to Michael R. Cox (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2004).

10.3Grant of non-qualified stock options dated April 1, 2004 to Michael R. Cox (incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2004).

10.4Fourth Amendment dated May 13, 2004 to Credit Agreement dated October 29, 2002 with The Provident Bank (incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter ended March 31, 2004).

(31)31.1Certification of Peter T. Kissinger †

31.2Certification of Michael R. Cox †

(32)32.1Section 1350 Certifications †

(99)99.1Risk factors (incorporated by reference to Exhibit 99.1 to Form 10-K for the year ended September 30, 2002).

Number assigned
in Regulation S-K
Item 601		Description of Exhibits
 
(3)3.1Second Amended and Restated Articles of Incorporation of Bioanalytical Systems, Inc. (incorporated
by reference to Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 1997).
 
3.2Second Restated Bylaws of Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 3.2 Form 10-Q for the quarter ended December 31, 1997).
 
(4)4.1Specimen Certificate for Common Shares (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1, Registration No. 333-36429).
 
(10)10.1Second Amendment to the Purchase and Sale Agreement between BASi Maryland, Inc. and 300 W. Fayette, LLC (incorporated by reference to Exhibit 10.21 of Form 10-K filed January 13, 2005)
 
(31)31.1Certification of Peter T. Kissinger +
 
31.2Certification of Michael R. Cox +
 
(32)32.1Section 1350 Certifications +
 
(99)99.1Risk factors (incorporated by reference to Exhibit 99.1 to Form 10-K for the year ended September 30, 2004).

†+ Filed with this Quarterly Report on Form 10-Q.

(b)        Reports on Form 8-K

        Form 8-K furnished April 29, 2004, reporting under Item 12 “Results of Operations and Financial Condition,” relating to the Company’s announcement of its results for the quarter ended March 31, 2004.




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SIGNATURES

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

BIOANALYTICAL SYSTEMS, INC.


By:  /s/  PETER T. KISSINGER

Peter T. Kissinger
President and Chief Executive Officer
(Principal Executive Officer)
Date:  August 19, 2004February 11, 2005


By:  /s/  MICHAEL R. COX
Michael R. Cox
Vice President-Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date:  August 19, 2004February 11, 2005




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