MANAGEMENT’S PLAN

The Company’s condensed consolidated financial statements were prepared on a going concern basis, which assumes continuity of operations and realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments to reflect possible future effects on the recoverability and classification of assets and liabilities that may result in the event the Company’s plans, including plans to rectify our liquidity issues, are not successful. As noted above, during fiscal 2016 and throughout the first six months of fiscal 2017, we have operated either in default of, or under forbearance arrangements with respect to, our credit agreements with Huntington Bank. During fiscal 2015 and 2016, we experienced depressed revenues as compared to historical levels. A significant portion of our costs are fixed. Thus, decreases in revenues led to decreased margins, which in turn negatively impacted cash provided from operating activities. To supplement cash from operating activities during that period, we relied, and may in the future rely, on our cash balance and supplemental funds from our credit arrangements. The Company’s operating performance for the three and six months ended March 31, 2017 reflects a significant improvement in our reported revenue and profitability versus recent trends. The potential inability to find replacement financing continues to raise doubt about the Company’s ability to continue as a going concern, and management has and will continue to take measures to mitigate that possibility.

We cannot provide assurance that we will be able to satisfy our cash requirements from cash provided by operating activities on a go-forward basis. If our working capital needs and capital expenditure requirements exceed cash provided by operating activities, then we may again look to our cash balance and committed credit lines, if any, to satisfy those needs. The term of our Fifth Forbearance Agreement ends on July 31, 2017, after which, or sooner should we default on the Fifth Forbearance Agreement, Huntington Bank may refrain from making additional advances under our revolving loan. In addition, alternative financing sources may hesitate to enter into credit arrangements with us due in part to historical losses.

The Company’s Board of Directors has directed management to seek alternatives that will enable the Company to repay its indebtedness to Huntington Bank in full upon the expiration of the forbearance period. The following alternatives, among others, are being evaluated: replacement financing, the potential disposition of certain assets and the possible sale of the West Lafayette building. Management has been reviewing details of all current account management and marketing programs as well as all invoicing and top-line growth initiatives. We cannot provide assurance that we will be able to resolve our liquidity issues on satisfactory terms, or at all.

Although the Company continues to face the near term challenge of replacing its Huntington Bank debt, the operating performance for the three and six months ended March 31, 2017 is encouraging. The financial results for the three and six months ended March 31, 2017 reflect Management’s initiatives aimed at growing revenue, reducing costs and generating more cash flow. The additional revenues for archive services and the recent reductions in inventory and accounts payable are examples of these initiatives. For the remainder of fiscal 2017, the entire BASi team remains committed to the Company’s core priorities and is focused on seeking additional opportunities to increase revenue and profits. For example, we are exploring the use of distributor and reseller arrangements to boost sales in our products business. Additionally, we intend to increase our investment in product research and development. We anticipate making investments to increase our discovery and preclinical services revenues. We have recently welcomed the Company’s founder as a scientific advisor to the team; and we are also looking to selectively add to our scientific and business development staff. Lastly, the Board of Directors continues to weigh options and timing for hiring a new Chief Executive Officer, to fill the position vacated in November of 2016.