Capital Resources

Total expenditures by BASi for property and equipment were $4,077,000 and $3,786,000 for the nine months ended June 30, 2003 and 2002, respectively. Expenditures made in connection with the expansion of BASi’s operating facilities in West Lafayette and Evansville, Indiana and in the United Kingdom and purchases of laboratory equipment account for the largest portions of these expenditures in each period. The capital investments relate to the purchase of additional laboratory equipment corresponding to anticipated increases in research services to be provided by BASi. BASi expects to make other investments to expand its operations through internal growth and strategic acquisitions, alliances and joint ventures.

During 2001, BASi commenced construction to expand its preclinical facilities in Evansville, Indiana. Construction of these preclinical facilities was completed during the nine months ended June 30, 2003. During 2002, BASi began expanding its facilities in West Lafayette, Indiana. Construction on the West Lafayette facilities is expected to have a total cost of $4,000,000. BASi obtained bank financing for each of these construction projects.

On December 13, 2002, BASi acquired LC Resources, Inc. (“LCR”), a privately-held company based in Walnut Creek, California. BASi purchased all of the outstanding shares of LCR for $2,500,000, subject to adjustment for certain changes in net tangible assets of LCR. Based on BASi’s preliminary review of LCR’s net tangible assets, the purchase price has been adjusted to approximately $2,000,000. BASi paid cash of $176,000, including acquisition costs, at closing with the remainder of the purchase price to be paid through promissory notes, bearing interest at 10% per annum, and maturing on October 1, 2007. The holders of the notes will have the option to require BASi to repay up to 20% of the outstanding principal balance of the notes on each October 1 prior to maturity, commencing October 1, 2003. These notes are subordinate to BASi’s bank debt.

On May 26, 2003, Pharmakinetics Laboratories, Inc. (“PKLB”) became a majority owned subsidiary through the conversion of $791,000 in convertible notes receivable to 4,992,300 shares of PKLB common stock, representing a 67% interest. On June 30, 2003, BASi completed its acquisition of PKLB through the exchange of approximately 228,857 shares of BASi common stock valued at $1,179,000 for all of the outstanding common stock and Class B preferred stock of PKLB, and the issuance of $4,000,000 of 6% convertible notes payable due 2009 (“6% Notes”) for all of PKLB’s Class A redeemable preferred stock. The 6% Notes are convertible into approximately 249,990 shares of BASi common stock. BASi paid cash aggregating $1,505,000, representing acquisition costs and cash advances made to PKLB from June 2002 through May 2003.

Now that the merger has been completed, BASi expects to expend additional amounts to pay trade payables and other obligations of PKLB and to fund PKLB’s continuing operations. BASi intends to fund these expenses using cash from operations and borrowings under its line of credit. BASi’s credit agreement also requires BASi to sell the Baltimore, Maryland real property within 180 days following its acquisition of PKLB. BASi intends to use the net proceeds from the sale to pay down the line of credit. BASi management believes that the sale of the building will enable it to fund PKLB operations until such time as the cash flow generated from those operations becomes adequate to support the operations.

On October 29, 2002, BASi obtained new credit agreements with two different banks that completely refinanced and replaced all outstanding bank debt arrangements that were in place at September 30, 2002. These new credit agreements provide for a $6,000,000 revolving line of credit with a bank and a mortgage note and two construction term loans payable with another bank aggregating $10,000,000. Borrowings under these new credit agreements are collateralized by substantially all assets related to BASi’s operations, all common stock of BASi’s United States subsidiaries and 65% of the common stock of its non-United States subsidiaries, and the assignment of a life insurance policy on BASi’s Chairman and CEO. Under the terms of these credit agreements, BASi has agreed to restrict advances to foreign subsidiaries, limit additional indebtedness and capital expenditures as well as to comply with certain financial covenants outlined in the borrowing agreements. These financial covenants include: maintenance of a certain ratio of interest bearing indebtedness (not including subordinated debt) to earnings before income taxes, depreciation, amortization, and interest expense (“EBITDA”); maintenance of a certain ratio of total indebtedness to tangible net worth and subordinated debt; maintenance of a certain ratio of EBITDA to certain identified fixed charges; maintenance of a certain ratio of current assets to current liabilities; limits on the amount of capital expenditures that can be made using funds other than long-term indebtedness in a single fiscal year; and maintenance of a certain ratio of net cash flow to debt servicing requirements. These credit agreements contain cross-default provisions.

BASi’s revolving line of credit expires September 30, 2005. The maximum amount available under the terms of the agreement is $6,000,000 with outstanding borrowings limited to the borrowing base as defined in the agreement. Interest accrues monthly on the outstanding balance at the bank’s prime rate to prime rate plus 125 basis points, or at the Eurodollar rate plus 200 to 350 basis points, as elected by BASi, depending upon the ratio of BASi’s interest bearing indebtedness (less subordinated debt) to EBITDA. BASi pays a fee equal to 25 to 50 basis points, depending upon the same financial ratio, on the unused portion of the line of credit.

BASi has a $5,410,000 commercial mortgage with a bank. The mortgage note requires 119 monthly principal payments of $22,542 plus interest, followed by a final payment for the unpaid principal amount of $2,727,502 due November 1, 2012. Interest is charged at the prime rate. BASi has a $2,250,000 construction loan with the same bank, which expires November 1, 2012. The loan requires interest payments only until completion of the project in West Lafayette, Indiana. Interest is charged at the prime rate. BASi had a $2,340,000 construction loan with a bank. BASi utilized $2,221,000 of the amount available which was converted to a commercial mortgage effective April 1, 2003. Proceeds from this loan were used to fund the expansion of BASi’s facilities in Evansville, Indiana. The loan requires 60 monthly principal and interest payments of $16,712 with the balance to be paid on April 1, 2008. Interest is charged at the prime rate (4.00% at June 30, 2003). On November 15, 2002, BASi obtained a $1,500,000 lease line for equipment with a bank. At June 30, 2003, $1,090,000 was utilized under the terms of operating leases requiring 60 payments of $17,820.

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

Liquidity

BASi is required to make cash payments in the future on debt and lease obligations. The following table summarizes BASi’s contractual term debt and lease obligations at June 30, 2003 and the effect such obligations are expected to have on its liquidity and cash flows in future periods (amounts in thousands).

			Payments due for fiscal years ending September 30:
			2003			2004-2005			2006-2007			After 2007			Total
Mortgage notes payable			$	316		$	777		$	797		$	5,697		$	7,587
Subordinated debt				75			252			---			5,552			5,879
Capital lease obligations				265			69			---			---			334
Operating leases				474			617			432			36			1,559
			$	1,130		$	1,750		$	1,229		$	11,285		$	15,359

BASi’s borrowings under its revolving line of credit for working capital needs, borrowings to fund capital expenditures using construction loans and the 6% subordinated notes payable that were issued in connection with the merger with PKLB will each affect BASi’s liquidity and cash flows in future periods. These obligations are not reflected in the above schedule. The covenants in BASi’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 BASi can borrow to fund future operations, acquisitions and capital expenditures.

During the first quarter of fiscal 2003, BASi borrowed additional funds to continue construction on its West Lafayette expansion project. In order to better assure compliance with the covenants in the credit agreement, construction on this project was delayed until May of 2003. The commencement of construction has required BASi to incur additional indebtedness. BASi has formulated and begun to implement a plan to reduce debt and improve its cash flow to better enable it to satisfy the credit agreement covenants in the future. The plan includes, but is not limited to, the sale of real estate assets in West Lafayette. BASi believes that delaying construction of the West Lafayette project reduced pressure on cash flow. By temporarily halting construction, BASi has been able to maintain leverage at current, acceptable levels, although delaying the construction project also resulted in a delay in the income expected from the facility. Furthermore, delaying construction also allowed BASi to defer hiring the additional employees necessary to staff the new facility. BASi has also begun to implement headcount reductions and other cost saving measures at its West Lafayette facility. BASi has reduced headcount by electing not to replace certain terminated employees and by reducing the hours of several formerly full-time employees. As an additional cost saving measure, all salaries have been frozen indefinitely and certain employees have elected to take temporary pay cuts. BASi has also implemented capital expenditure reductions and has limited the amount of business travel made by employees. BASi believes continued compliance with loan covenants will be achieved.

BASi issued additional subordinated debt of approximately $4,000,000 in connection with the acquisition of PKLB. Interest does not begin to accrue on the indebtedness until June 30, 2004 and the first interest payment is due on July 15, 2004. This indebtedness does not affect BASi’s compliance with the leverage covenant in its credit agreement. However, as discussed above, BASi has used cash from operations and amounts available under its credit agreement to pay trade payables and other obligations of PKLB and to fund PKLB’s future operations. To offset these requirements, BASi's credit agreement requires it to sell a building owned by PKLB, located in Baltimore, Maryland.

Based on its current business activities, BASi believes cash generated from its operations, amounts available under its existing bank line of credit and credit facility, and the proposed action plan will be sufficient to fund BASi’s short and long-term working capital and capital expenditure requirements for the foreseeable future and through September 30, 2004.

Inflation

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

New Accounting Pronoucements

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

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. The credit agreement between BASi and The Provident Bank dated October 29, 2002 bears interest at a rate of either the bank’s prime rate plus 0 to 125 basis points, or at Eurodollar rate plus 200 to 350 basis points, depending in each case upon the ratio of BASi’s interest-bearing indebtedness (less subordinated debt) to EBITDA, at BASI’s option. BASi also has construction loans and a commercial mortgage which bear interest at the prime rate. 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 rates change. The effect of movements in the exchange rates was not material to the consolidated operating results of BASi in fiscal years 2002 and 2001. 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, BASi’s Chief Executive Officer and Chief Financial Officer believe BASi’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June 30, 2003. There were no significant changes in BASi’s internal controls over financial reporting that have materially affected, or are reasonable likely to materially affect the company’s internal control over financial reporting subsequent to the date of their evaluation, and there were no significant deficiencies or material weaknesses which required corrective actions.

PART II — OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

        (a)        Exhibits

Number assigned in Regulation S-K Item 601

Description of Exhibits

(2)

2.1

Agreement and Plan of Merger, dated June 20, 2002, among Bioanalytical Systems, Inc., PI Acquisition Corp. and PharmaKinetics Laboratories Inc., amended and restated to give effect to Amendment No. 1 to Agreement and Plan of Merger, dated July 24, 2002 (incorporated by reference to Exhibit 2.1 to Registration Statement on Form S-4, Registration No. 333-99593).

2.2

Second Amendment, dated November 21, 2002, to the Agreement and Plan of Merger by and among PharmaKinetics Laboratories, Inc., Bioanalytical Systems, Inc. and PI Acquisition Corp., dated as of June 20, 2002, as amended by a First Amendment, dated as of July 24, 2002 (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 21, 2002).

2.3

Amendment No. 3 to the Agreement and Plan of Merger dated as of November 21, 2002, by and among PharmaKinetics Laboratories, Inc., Bioanalytical Systems, Inc. and PI Acquisition Corp., dated as of April 15, 2003 (incorporated by reference to Exhibit 10.1 to Form 8-K filed April 16, 2003).

(3)

3.1

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

3.2

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

(4)

4.1

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

4.2

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

4.3

Form of 10% Subordinated Note due 2007.

First Amendment to Credit Agreement

(11)

11.1

Statement Regarding Computation of Per Share Earnings.

(31)

31.1

Certification of Chief Executive Officer.

31.2

Certification of Chief Financial Officer.

(32)

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(99)

99.1

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

99.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

99.3

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

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

        (b)         Reports on Form 8-K

Form 8-K filed April 16, 2003 reporting under itmes 5 and 7.
Form 8-K filed May 9, 2003 reporting under itmes 5.
Form 8-K filed May 15, 2003 reporting under itmes 5 and 7.
Form 8-K filed May 22, 2003 reporting under itmes 7 and 9.
Form 8-K filed May 29, 2003 reporting under itmes 5 and 7.

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 Date:  August 19, 2003 By:  /s/  Douglas P. Wieten Douglas P. Wieten Vice President-Finance, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer) Date:  August 19, 2003