10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2009

OR 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ___________ to _____________.

Commission File Number 000-23357

BIOANALYTICAL SYSTEMS, INC.

(Exact name of the registrant as specified in its charter)

INDIANA (State or other jurisdiction of incorporation or organization)	35-1345024 (I.R.S. Employer Identification No.)
2701 KENT AVENUE WEST LAFAYETTE, INDIANA (Address of principal executive offices)	47906 (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) 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.   YES x        NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o  Accelerated filer o   Non-accelerated filer o  Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES o  NO x

As of August 7, 2009, 4,915,318 of the registrant's common shares were outstanding.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets as of June 30, 2009 and September 30, 2008	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2009 and 2008	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2009 and 2008	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 4	Controls and Procedures	21
PART II	OTHER INFORMATION
Item 1A	Risk Factors	22
Item 6	Exhibits	22
	Signatures	23

2

BIOANALYTICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	June 30, 2009		September 30, 2008
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	222	$	335
Accounts receivable
Trade		4,650		6,705
Unbilled revenues and other		1,505		2,653
Inventories		1,913		2,184
Deferred income taxes		516		516
Refundable income taxes		677		1,283
Prepaid expenses		483		639
Current assets of discontinued operations		—		629
Total current assets		9,966		14,944
Property and equipment, net		21,820		23,135
Deferred income taxes		820		—
Goodwill		1,383		1,855
Intangible assets, net		121		144
Debt issue costs		142		177
Other assets		88		92
Total assets	$	34,340	$	40,347
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	1,765	$	2,209
Accrued expenses		2,057		2,061
Customer advances		3,603		4,032
Income tax accruals		473		473
Revolving line of credit		1,491		2,023
Current portion of capital lease obligation		698		720
Current portion of long-term debt		516		491
Current liabilities of discontinued operations		—		41
Total current liabilities		10,603		12,050
Capital lease obligation, less current portion		931		1,443
Long-term debt, less current portion		8,324		8,715
Fair value of interest rate swaps		110		—
Deferred income taxes		—		344
Shareholders’ equity:
Preferred Shares:
Authorized 1,000 shares; none issued and outstanding		—		—
Common shares, no par value:
Authorized 19,000 shares; issued and outstanding 4,915 at
June 30, 2009 and September 30, 2008		1,191		1,191
Additional paid-in capital		13,017		12,561
Retained earnings		126		4,173
Accumulated other comprehensive income (loss)		38		(130	)
Total shareholders’ equity		14,372		17,795
Total liabilities and shareholders’ equity	$	34,340	$	40,347

The accompanying notes are an integral part of the condensed consolidated financial statements.

3

BIOANALYTICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2009			2008			2009			2008
Service revenue	$	6,113		$	9,068		$	17,423		$	25,653
Product revenue		2,008			2,379			5,841			6,660
Total revenue		8,121			11,447			23,264			32,313
Cost of service revenue		5,212			6,240			15,777			17,348
Cost of product revenue		774			891			2,433			2,604
Total cost of revenue		5,986			7,131			18,210			19,952
Gross profit		2,135			4,316			5,054			12,361
Operating expenses:
Selling		734			975			2,569			2,641
Research and development		174			212			592			583
General and administrative		1,325			1,952			5,765			5,631
Impairment loss		472			—			472			—
Total operating expenses		2,705			3,139			9,398			8,855
Operating income (loss)		(571	)		1,177			(4,344	)		3,506
Interest expense		(228	)		(251	)		(870	)		(702	)
Other income		—			1			3			34
Income (loss) from continuing operations before income taxes		(799	)		927			(5,211	)		2,838
Income taxes (benefit)		(167	)		520			(1,164	)		1,412
Net income (loss) from continuing operations	$	(632	)	$	407		$	(4,047	)	$	1,426
Discontinued Operations (Note 5)
Loss from discontinued operations before income taxes	$	—		$	(829	)	$	—		$	(2,760	)
Loss on disposal		—			(431	)		—			(431	)
Tax benefit		—			599			—			1,359
Net loss from discontinued operations	$	—		$	(661	)	$	—		$	(1,832	)
Net loss	$	(632	)	$	(254	)	$	(4,047	)	$	(406	)
Basic net income (loss) per share:
Net income(loss) per share from continuing operations	$	(0.13	)	$	0.08		$	(0.82	)	$	0.29
Net loss per share from discontinued operations		—			(0.13	)		—			(0.37	)
Basic net loss per share	$	(0.13	)	$	(0.05	)	$	(0.82	)	$	(0.08	)
Diluted net income (loss) per share:
Net income (loss) per share from continuing operations	$	(0.13	)	$	0.08		$	(0.82	)	$	0.29
Net loss per share from discontinued operations		—			(0.13	)		—			(0.37	)
Diluted net loss per share	$	(0.13	)	$	(0.05	)	$	(0.82	)	$	(0.08	)
Weighted common shares outstanding:
Basic		4,915			4,914			4,915			4,913
Diluted		4,915			4,939			4,915			4,979

The accompanying notes are an integral part of the condensed consolidated financial statements.

4

BIOANALYTICAL SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended June 30,
	2009			2008
Operating activities:
Net loss	$	(4,047	)	$	(406	)
Adjustments to reconcile net loss to net cash provided by continuing operating activities:
Net loss from discontinued operations		—			1,832
Depreciation and amortization		2,008			2,150
Asset impairment loss		472			—
Employee stock compensation expense		456			336
Bad debt expense		26			122
Loss on interest rate swap		110			—
Loss on sale of property and equipment		21			7
Deferred income taxes		(1,164	)		773
Changes in operating assets and liabilities:
Accounts receivable		3,176			(652	)
Inventories		271			(197	)
Refundable income taxes		605			(193	)
Prepaid expenses and other assets		159			158
Accounts payable		(444	)		845
Accrued expenses		(4	)		(291	)
Customer advances		(429	)		(402	)
Net cash provided by continuing operating activities		1,216			4,082
Investing activities:
Capital expenditures, net of proceeds from sale of property and equipment		(690	)		(1,281	)
Net cash used by continuing investing activities		(690	)		(1,281	)
Financing activities:
Payments of long-term debt		(366	)		(4,760	)
Borrowings on long-term debt		—			1,400
Payments on revolving line of credit		(13,511	)		(10,068	)
Borrowings on revolving line of credit		12,979			11,312
Payments on capital lease obligations		(534	)		(462	)
Net proceeds from the exercise of stock options		—			13
Net cash used by continuing financing activities		(1,432	)		(2,565	)
Cash Flow of Discontinued Operations:
Cash provided (used) by operating activities		588			(2,709	)
Net cash used by investing activities		—			668
Net cash provided (used) by discontinued operations		588			(2,041	)
Effect of exchange rate changes		205			13
Net decrease in cash and cash equivalents		(113	)		(1,792	)
Cash and cash equivalents at beginning of period		335			2,837
Cash and cash equivalents at end of period	$	222		$	1,045

The accompanying notes are an integral part of the condensed consolidated financial statements.

5

BIOANALYTICAL SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands except per share amounts unless otherwise indicated)

(Unaudited)

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Bioanalytical Systems, Inc. and its subsidiaries (“We,” the “Company” or “BASi”) engage in contract laboratory research 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 condensedconsolidated 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 generally accepted accounting principles (“GAAP”), and therefore should be read in conjunction with our audited consolidated financial statements, and the notes thereto, for the year ended September 30, 2008.  In the opinion of management, the condensed consolidated financial statements for the three and nine months ended June 30, 2009 and 2008 include all adjustments necessary for a fair presentation of the results of the interim periods and of our financial position at June 30, 2009. Certain items previously reported in specific condensed consolidated financial statement captions have been reclassified to conform to the 2009 presentation. All such adjustments are of a normal recurring nature.  These reclassifications had no impact on net loss for the period previously reported.  The results of operations for the three and nine months ended June 30, 2009 are not necessarily indicative of the results for the year ending September 30, 2009.

2. STOCK-BASED COMPENSATION

At June 30, 2009, we continued to use the 2008 Stock Option Plan (“the Plan”), used to promote our long-term interests by providing a means of attracting and retaining officers, directors and key employees and aligning their interests with those of our shareholders.  The Plan is 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, 2008.  This Plan replaced the 1997 Outside Director Stock Option Plan and the 1997 Employee Stock Option Plan. All options granted under these plans had an exercise price equal to the market value of the underlying common shares on the date of grant.  We expense the estimated fair value of stock options over the vesting periods of the grants, in accordance with Financial Accounting Standard No. 123 (Revised).  Our policy is to recognize expense for awards subject to graded vesting using the straight-line attribution method.   The assumptions used are detailed in Note 9 to the Consolidated Financial Statements in our Form 10-K for the year ended September 30, 2008.  During the first nine months of fiscal 2009, we granted 60 options to newly hired employees in connection with their employment agreements.  Stock based compensation expense for the three and nine months ended June 30, 2009 was $147 and $456 with no tax benefits.  Stock based compensation expense for the three and nine months ended June 30, 2008 was $148 and $451 with tax benefits of $38 and $115, respectively.  A summary of our stock option activity for the nine months ended June 30, 2009 is as follows (in thousands except for share prices):

	Options (shares)			Weighted- Average Exercise Price		Weighted- Average  Grant Date Fair Value
Outstanding - October 1, 2008		754		$	6.06	$	3.50
Granted		60		$	4.07	$	2.73
Terminated		(174	)	$	5.61	$	3.60
Outstanding - June 30, 2009		640		$	6.00	$	3.39

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3. INCOME (LOSS) PER SHARE

We compute basic income (loss) per share using the weighted average number of common shares outstanding.  We compute diluted income (loss) 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.  Shares issuable upon exercise of options were excluded from the computation of loss per share for the three and nine months ended June 30, 2009 as they are anti-dilutive.

The following table reconciles our computation of basic income (loss) per share from continuing operations to diluted income (loss) per share from continuing operations:

	Three Months Ended June 30,					Nine Months Ended June 30,
	2009			2008		2009			2008
Basic net income (loss) per share from continuing operations:
Net income (loss) applicable to common shareholders	$	(632	)	$	407	$	(4,047	)	$	1,426
Weighted average common shares outstanding		4,915			4,914		4,915			4,913
Basic net income (loss) per share from continuing operations	$	(0.13	)	$	0.08	$	(0.82	)	$	0.29
Diluted net income (loss) per share from continuing operations:
Diluted net income (loss) applicable to common shareholders	$	(632	)	$	407	$	(4,047	)	$	1,426
Weighted average common shares outstanding		4,915			4,914		4,915			4,913
Dilutive stock options/shares		—			25		—			66
Diluted weighted average common shares outstanding		4,915			4,939		4,915			4,979
Diluted net income (loss) per share from continuing operations	$	(0.13	)	$	0.08	$	(0.82	)	$	0.29

4. INVENTORIES

Inventories consisted of the following:

	June 30, 2009		September 30, 2008
Raw materials	$	1,521	$	1,748
Work in progress		181		234
Finished goods		211		202
	$	1,913	$	2,184

7

5. DISCONTINUED OPERATIONS

On June 30, 2008, we completed a transaction with Algorithme Pharma USA Inc. ("AP USA") and Algorithme Pharma Holdings Inc. ("Algorithme") whereby we sold the operating assets of our Baltimore Clinical Pharmacology Research Unit (“CPRU”).   In exchange, we received cash of $850 and the assumption of certain liabilities related to the CPRU, including our obligations under the lease for the facility in which the CPRU operated.  As a result of this sale, we exited the Phase I first-in-human clinical study market.  We remain contingently liable for $800 annually through 2015 for future financial obligations under the lease if AP USA and Algorithme fail to meet their lease commitment.

Accordingly, in the accompanying condensed consolidated statements of operations and cash flows we have segregated the results of the CPRU as discontinued operations for the current and prior fiscal periods.  The loss from discontinued operations in the prior year period reflects the operating loss of the CPRU.  The CPRU was previously included in our Services segment.

Condensed Statements of Operations from Discontinued Operations

	Three Months ended June 30, 2008			Nine Months ended June 30, 2008
Net Sales	$	570		$	2,187
Loss before income taxes and disposal		(829	)		(2,760	)
Loss on disposal		(431	)		(431	)
Loss from operations before tax benefit		(1,260	)		(3,191	)
Income tax benefit		599			1,359
Net loss	$	(661	)	$	(1,832	)

Summary Balance Sheets of Discontinued Operations

	June 30, 2009		September 30, 2008
Receivables, net of allowance for doubtful accounts	$	—	$	346
Other current assets		—		283
Total assets	$	—	$	629
Accounts payable, accrued liabilities and equity	$	—	$	629

8

6. SEGMENT INFORMATION

We operate in two principal segments - research services and research 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 found in Note 2 to Consolidated Financial Statements in our annual report on Form 10-K for the year ended September 30, 2008.  As a result of the sale of our CPRU described in Note 5, the segment information reflects the operating results by segment for only continuing operations.

	Three Months Ended June 30,					Nine Months Ended June 30,
	2009			2008		2009			2008
Revenue:
Service	$	6,113		$	9,068	$	17,423		$	25,653
Product		2,008			2,379		5,841			6,660
	$	8,121		$	11,447	$	23,264		$	32,313
Operating income (loss) from continuing operations:
Service	$	(683	)	$	846	$	(3,738	)	$	2,725
Product		112			331		(606	)		781
	$	(571	)	$	1,177	$	(4,344	)	$	3,506

7. INCOME TAXES

We use the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the temporary differences are expected to reverse.  The effect on deferred taxes of a change in enacted tax rates is recognized in income in the period when the change is effective.

When warranted, we maintain a liability for uncertain tax positions. Effective October 1, 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 (“FIN 48”).  This authoritative interpretation clarified and standardized the manner by which companies are required to account for uncertain income tax positions. Under the guidance of FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon regulatory examination based on the technical merits of the position. The amount of the accrual for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position.

During the three and nine months ended June 30, 2009, there were no changes to our reserve for uncertain income tax positions.  Our reserve for uncertain income tax positions at June 30, 2009 and September 30, 2008 is $473.  This liability is classified as a current liability in the condensed consolidated balance sheet based on the timing of when we expect each of the items to be settled.

Our unrecognized tax liability is related to certain state income tax issues.  Over the next twelve months, it is reasonably possible that the uncertainty surrounding our reserve for uncertain income tax positions will be resolved upon the conclusion of state tax audits. Accordingly, if such resolutions are favorable, we would reduce the carrying value of our reserve.  We recognize interest and/or penalties related to income tax matters in income tax expense.   We did not have any amounts accrued for interest and penalties at June 30, 2009.  We file income tax returns in the U.S., several U.S. States, and the United Kingdom.  The following tax years remain open to regulatory examination as of June 30, 2009 for our major tax jurisdictions:

9

Tax Jurisdiction	Years
US Federal and States		2004-2008
United Kingdom		2001-2008

8. DEBT

Term Loan

On December 18, 2007, we entered into a loan agreement with Regions Bank (“Regions”) under which Regions loaned us $1,400 under a term loan maturing December 18, 2010. Interest on the loan is equal to the London Interbank Offer Rate (“LIBOR”) plus 215 basis points and requires monthly payments of approximately $12 plus interest. The loan is collateralized by real estate at the Company’s West Lafayette and Evansville, Indiana locations. Regions also holds approximately $7,400 of additional mortgage debt on these facilities. We used a portion of the proceeds of the loan and existing cash on hand to repay our subordinated debt of approximately $4,500 during the first quarter of the prior fiscal year.  We entered into interest rate swap agreements with respect to these loans to fix the interest rate at 6.1%.

Effective October 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (“FAS 157”) in order to account for the fair value of the interest rate swaps in our condensed consolidated financial statements.  The fair value of the swaps was determined with a level two analysis.  As a result of recent declines in short term interest rates, the swaps had a negative fair value of $110 at June 30, 2009, compared to $0 at September 30, 2008, which was recorded in our condensed consolidated financial statements as interest expense and a long term liability.  The fair value of these swaps was not material to the condensed consolidated financial statements in the comparable period of the prior fiscal year.  The terms of the interest rate swaps match the scheduled principal outstanding under the loans.  We do not intend to prepay the loans, and expect the swaps to expire under their terms in two years without payment by us.  Upon expiration of the swaps, the net fair value recorded in the condensed consolidated financial statements is expected to be zero.

The covenants in our loan agreements with Regions require us to maintain certain ratios including a fixed charge coverage ratio and total liabilities to tangible net worth ratio.  The Regions loan agreements contain cross-default provisions with each other and with the revolving line of credit with National City Bank described below.  At December 31, 2008 and March 31, 2009, we were not in compliance with our fixed charge coverage ratio.  On February 17, 2009, Regions agreed to waive our violation of our fixed charge coverage ratio covenant through the end of our second fiscal quarter of the current year.  On May 18, 2009, Regions agreed to amend the computations and requirements for the fixed charge coverage ratio through December 31, 2009.  After that date, the computations and requirements for the fixed charge coverage ratio will revert to those in the original agreement.  The amended computations will be less restrictive for us.  At June 30, 2009, we were in compliance with the amended fixed charge coverage ratio.

Revolving Line of Credit

Through December 31, 2009, we have a revolving line of credit (“Agreement”), with National City Bank (“National City”), which we use for working capital and other purposes. Borrowings under the Agreement are collateralized by substantially all assets related to our operations, other than the real estate securing the Regions loans, all common stock of our United States subsidiaries and 65% of the common stock of our non-United States subsidiaries. Under the Agreement, the Company has agreed to restrict advances to subsidiaries, limit additional indebtedness and capital expenditures and comply with certain financial covenants outlined in the Agreement.

The covenants in the Agreement require that we maintain certain ratios of interest-bearing indebtedness to EBITDA and net cash flow to debt servicing requirements, which may restrict the amount we can borrow to fund future operations, acquisitions and capital expenditures.  The Agreement also contains cross-default provisions with the Regions loans.

On July 17, 2009, we executed a Fourth Amendment to the Amended and Restated Credit Agreement with National City.  In fiscal 2009, prior to the Fourth Amendment, we had been operating in breach of the Agreement’s fixed charge coverage ratio and tangible net worth covenants for the duration of the current fiscal year.  Under the amended Agreement, National City has agreed to waive our violations of the fixed charge coverage ratio covenant and the tangible net worth covenant through the end of our third fiscal quarter of the current year.  National City also agreed to amend the computations and requirements for the fixed charge coverage ratios and the tangible net worth ratio through December 31,2009.  These amended computations will be less restrictive for us.

10

The amended Agreement limits outstanding borrowings to the “borrowing base,” as defined in the Agreement, up to a maximum available amount of $3,000. As of June 30, 2009, we had $3,359 of total borrowing capacity (subsequently limited to $3,000 by the amendment), of which $1,491 was outstanding. Borrowings bear interest at an annual rate equal to LIBOR plus five percent (5%).  In the event that LIBOR becomes unavailable, the outstanding principal balance of borrowings under the line of credit shall bear interest at an annual rate equal to the Prime Rate plus two percent (2%). Interest is paid monthly.  The line of credit also carries a fee, payable quarterly, for the portion of the line which is unused, minus the amount of all letters of credit.

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts for cash and cash equivalents, accounts receivable, inventories, prepaid expenses and other assets, accounts payable and other accruals approximate their fair values because of their nature and respective duration.  The fair value of the revolving credit facility and long term debt is equal to their carrying values due to the variable nature of their interest rates

10. GOODWILL IMPAIRMENT

Goodwill and other indefinite lived intangible assets, collectively referred to as "indefinite lived assets,” are tested annually using a fair value-based impairment test, and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value.  Our UK facility has been experiencing operating losses for the current fiscal year.  Establishing future profitable operations of this facility will require additional sales efforts and expenditures.  Using the net present value of current and projected cash flows in our third quarter ended June 30, 2009, we determined there was an impairment of the value of goodwill at the UK facility and recorded a $472 impairment loss in general and administrative expenses equal to the total value of the UK goodwill. The impairment impacted the Services segment in these financial statements and footnotes.

11. NEW ACCOUNTING PRONOUNCEMENTS

In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments" (FSP 107-1 and APB 28-1), which amends SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies that were previously only required in annual financial statements.  FSP 107-1 and APB 28-1 became effective for interim reporting periods ending after June 15, 2009.  We adopted FSP 107-1 and APB28-1 in our third quarter of fiscal 2009.

In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles"(SFAS No. 168).  SFAS No. 168 establishes the FASB Accounting Standards Codification as the authoritative source of accounting principals to be used in the preparation of the financial statements by nongovernmental entities.  SFAS 168 is effective for fiscal years and interim periods ending after September 15, 2009.  We plan to adopt SFAS 168 during our fourth quarter of fiscal 2009.

12. SUBSEQUENT EVENTS

We evaluated subsequent events through August 12, 2009, the date our consolidated financial statements were issued.  No matters, outside the bank amendment described in Note 8, were identified that would materially impact our consolidated financial statements or require disclosure.

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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 our intent, belief or current expectations with respect to (i) our strategic plans; (ii) our future profitability, liquidity and capital resources; (iii) our capital requirements; (iv) industry  trends  affecting  our  financial  condition  or results of operations;  (v)  our sales or marketing plans; or (vi) our growth  strategy.  Investors  in  our common shares are cautioned that reliance on  any  forward-looking  statement  involves risks and uncertainties, including  the risk factors contained in Part II, Item 1A of our quarterly report on Form 10-Q for the quarter ended December 31, 2008 and in our annual report on Form 10-K for the fiscal year ended September 30, 2008.  Although  we  believe  that  the assumptions  on  which  the  forward-looking  statements  contained  herein are based are reasonable,  any  of  those  assumptions  could fail to project actual events, and as a result,  the  forward-looking statements based upon those assumptions could prove to be significantly different from actual results.  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  us  that our plans and objectives  will  be  achieved.  We do not undertake any obligation to update any forward-looking statement.

Due to the sale of our clinical research unit in June 2008, the following analysis will focus only on continuing operations. (Dollar amounts are in thousands, unless otherwise indicated.)

General

The Company provides contract development services and research equipment to many leading global pharmaceutical, medical research and biotechnology companies and institutions. Our services offer an efficient, variable cost alternative to augment our clients' internal product development programs. Outsourcing development work to reduce overhead and speed drug approvals through the Food and Drug Administration ("FDA") is an established addition to in-house development among pharmaceutical companies. We derive our revenues from sales of our research services and drug development tools, both of which are focused on determining drug safety and efficacy.  The Company has been involved in research to understand the underlying causes of central nervous system disorders, diabetes, osteoporosis and other diseases since its formation in 1974.

We support the preclinical and clinical development needs of researchers and clinicians for small molecule through large biomolecule drug candidates. We believe our scientists have the skills in analytical instrumentation development, chemistry, computer software development, physiology, medicine, and toxicology to make the services and products we provide valuable to our current and potential clients. Scientists engaged in analytical chemistry, clinical trials, drug metabolism studies, pharmacokinetics and basic neuroscience research at many of the largest global pharmaceutical companies are our principal clients.

Our primary market, the contract research organization (“CRO”) market, is experiencing serious economic pressures.  Since the end of our 2008 fiscal year, pharmaceutical development companies have delayed the initiation of CRO studies and reduced their total spending for CRO services.  We believe these actions are largely in response to the global economic recession and related financial crisis.  The delays and reductions in spending by our customers have resulted in a significant negative impact on our revenues for the first half of fiscal 2009 as compared to our prior fiscal year.  However, the number of new studies initiated by our customers increased during our third fiscal quarter ended June 30, 2009.

In contrast to fiscal 2008, the first nine months of fiscal 2009 experienced major announcements of large mergers in the pharmaceutical industry. Pfizer Inc. and Eli Lilly and Co. have both announced significant acquisitions.  Also, Merck and Roche have recently announced mergers with Schering-Plough and Genentech, respectively. We believe that such merger and consolidation activity will affect the demand and competition for CRO services.  The additional competitive pressures could adversely affect our future operating results.

Research services are capital intensive. The investment in equipment and facilities to serve our markets is substantial and continuing. While our physical facilities are adequate 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 future market demands. We are also impacted by the heightened regulatory environment and the need to improve our business infrastructure to support our 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 capacity and have instituted a freeze on capital expenditures, sustained growth will require additional investment in future periods.

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Critical Accounting Policies

"Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Liquidity and Capital Resources" discusses the unaudited condensed consolidated financial statements of the Company, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires management to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Certain significant accounting policies applied in the preparation of the financial statements require management to make difficult, subjective or complex judgments, and are considered critical accounting policies. We have identified the following areas as critical accounting policies.

Revenue Recognition

The majority of our service contracts involve the processing of bioanalytical samples for pharmaceutical companies. These contracts generally provide for a fixed fee for each assay method developed or sample processed and revenue is recognized under the specific performance method of accounting. Under the specific performance method, revenue and related direct costs are recognized when services are performed. Other service contracts generally consist of preclinical studies for pharmaceutical companies. Service revenue is recognized based on the ratio of direct costs incurred to total estimated direct costs under the proportional performance method of accounting. Losses on contracts are provided in the period in which the loss becomes determinable. Revisions in profit estimates are reflected on a cumulative basis in the period in which such revisions become known. The establishment of contract prices and total contract costs involves estimates made by the Company at the inception of the contract period. These estimates could change during the term of the contract which could impact the revenue and costs reported in the consolidated financial statements. Projected losses on contracts are provided for in their entirety when known. Revisions to estimates have not been material. Service contract fees received upon acceptance are deferred and classified within customer advances, until earned. Unbilled revenues represent revenues earned under contracts in advance of billings.

Product revenue from sales of equipment not requiring installation, testing or training is recognized upon shipment to customers. One product includes internally developed software and requires installation, testing and training, which occur concurrently. Revenue from these sales is recognized upon completion of the installation, testing and training when the services are bundled with the equipment sale.

Long-Lived Assets, Including Goodwill

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Goodwill and other indefinite lived intangible assets, collectively referred to as "indefinite lived assets,” are tested annually for impairment, and more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value.  In our third quarter ended June 30, 2009, we recorded a $472 impairment loss equal to the total value of the UK goodwill because of fiscal year 2009 operating losses and lowered expectations for the near future.  At June 30, 2009, remaining recorded goodwill was $1,383, and the net balance of other intangible assets was $121.

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Stock-Based Compensation

We recognize the cost resulting from all share-based payment transactions in our financial statements using a fair-value-based method.  We measure compensation cost for all share-based awards based on estimated fair values and recognize compensation over the vesting period for awards. We recognized stock-based compensation related to stock options of $147 and $456 during the three and nine months ended June 30, 2009, respectively.

We use the binomial option valuation model to determine the grant date fair value. The determination of fair value is affected by our stock price as well as assumptions regarding subjective and complex variables such as expected employee exercise behavior and our expected stock price volatility over the term of the award. Generally, our assumptions are based on historical information and judgment is required to determine if historical trends are indicators of future outcomes. We estimated the following key assumptions for the binomial valuation calculation:

· Risk-free interest rate. The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant for the expected term of the option.

· Expected volatility. We use our historical stock price volatility on our common stock for our expected volatility assumption.

· Expected term. The expected term represents the weighted-average period the stock options are expected to remain outstanding. The expected term is determined based on historical exercise behavior, post-vesting termination patterns, options outstanding and future expected exercise behavior.

· Expected dividends. We assumed that we will pay no dividends.

Employee stock-based compensation expense recognized in the first three and nine months of fiscal 2009 and 2008 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and an adjustment will be recognized at that time.

Changes to our underlying stock price, our assumptions used in the binomial option valuation calculation and our forfeiture rate as well as future grants of equity could significantly impact compensation expense to be recognized in fiscal 2009 and future periods.

Income Taxes

As described in Note 7 to these condensed consolidated financial statements, we use the asset and liability method of accounting for income taxes. 

Additionally, in accordance with Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 (“FIN 48”), which we adopted effective October 1, 2007, when warranted, we maintain a reserve for uncertain tax positions. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount of the accrual for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position.

During the three and nine months ended June 30, 2009 and June 30, 2008, there were no changes in our reserve for uncertain income tax positions.  Our reserve for uncertain income tax positions at June 30, 2009 is $473.  This reserve is classified as a current liability in the condensed consolidated balance sheet based on when we expect each of the items to be settled. We record interest and penalties accrued in relation to uncertain income tax positions as a component of income tax expense.

Any changes in the liability for uncertain tax positions would impact our effective tax rate. Over the next twelve months, it is reasonably possible that the uncertainty surrounding our reserve for uncertain income tax positions, which relate to certain state income tax issues, will be resolved upon the conclusion of state tax audits. Accordingly, if such resolutions are favorable, we would reduce the carrying value of our reserve. 

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We have an accumulated net deficit in our UK subsidiaries, consequently, United States deferred tax liabilities on such earnings have not been recorded.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) cost method of accounting.

Results of Operations

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

	Three Months Ended June 30,						Nine Months Ended June 30,
	2009			2008			2009			2008
Service revenue		75.3	%		79.2	%		74.9	%		79.4	%
Product revenue		24.7			20.8			25.1			20.6
Total revenue		100.0			100.0			100.0			100.0
Cost of service revenue (a)		85.3			68.8			90.6			67.6
Cost of product revenue (a)		38.5			37.5			41.7			39.1
Total cost of revenue		73.7			62.3			78.3			61.7
Gross profit		26.3			37.7			21.7			38.3
Total operating expenses		33.3			27.4			40.4			27.4
Operating income (loss)		(7.0	)		10.3			(18.7	)		10.9
Other expense		2.8			2.2			3.7			2.1
Income (loss) from continuing operations before income taxes		(9.8	)		8.1			(22.4	)		8.8
Income taxes (benefit)		(2.1	)		4.5			(5.0	)		4.4
Net income (loss) from continuing operations		(7.7	)%		3.6	%		(17.4	)%		4.4	%

(a) Percentage of service and product revenues, respectively

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Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

Service and Product Revenues

Overall, our Services and Product revenues continue to be negatively impacted by the U.S. and European economic recession.  Revenues for the third fiscal quarter ended June 30, 2009 decreased 29.1% to $8,121 compared to $11,447 for the same period last year.

Our Service revenue decreased 32.6% to $6,113 in the current quarter compared to $9,068 for the comparable prior year period primarily as a result of decreases in bioanalytical analysis and toxicology services.  Our bioanalytical analysis revenues decreased $2,016, a 37.5% decrease from the third quarter of fiscal 2008, mainly due to study delays by clients and decreases in new bookings.  Our West Lafayette facility experienced the majority of the decline in bioanalytical analysis revenues, or $1,527. Toxicology revenues decreased $954 or 31.9% over the prior year period.  Study delays and cancellations contributed to the decline for the toxicology group as well.  The pharmaceutical analysis group increased year over year by 15.4%, or $69.

Sales in our Products segment decreased from $2,379 in the third quarter of fiscal 2008 to $2,008 for the same period in fiscal 2009.  The 15.6% decrease stems from the decline in sales of our Culex automated in vivo sampling systems of $280 or 22.1%, as well as a decline in sales of our more mature analytical products of $194 or 20.7% from the same period last year.

Although our revenues for the third quarter were less than in the comparable period in our prior fiscal year, our revenues were the highest of the three quarters for our current fiscal year.  This increase is the result of increased proposal opportunities and acceptance rates since January 1, 2009 compared to the last six months of calendar 2008 resulting from the efforts of our sales and marketing department which was reorganized in the first quarter of fiscal 2009.

Cost of Revenues

Cost of revenues for the current quarter was $5,986 or 73.7% of revenue, compared to $7,131, or 62.3% of revenue for the prior year period.

Cost of Service revenue as a percentage of Service revenue increased to 85.3% in the current quarter from 68.8% in the comparable quarter last year.  The principal cause of this increase was the decline in sales.  A significant portion of our costs of productive capacity in the Service segment are fixed.   Thus, decreases in revenues lead to increases in costs as a percentage of revenue.

Cost of Product revenue as a percentage of Product revenue in the current quarter increased to 38.5% from 37.5% in the prior year period.   This increase is mainly due to a change in the mix of products sold in the current quarter.

Operating Expenses

Selling expenses for the three months ended June 30, 2009 decreased 24.7% to $734 from $975 for the comparable period last year.  This decrease was primarily driven by a decrease in salary expense resulting from the reduction in force and other departures, lower commissions due to the decline in sales and reduced spending on marketing expenditures.

Research and development expenses for the second quarter of fiscal 2009 decreased 17.9% over the comparable period last year to $174 from $212.  The decrease was partially due to a decrease in salaries from the reduction in force as well as reduced spending on temporary labor and operating supplies.

General and administrative expenses for the current quarter decreased 32.1% to $1,325 from $1,952 for the prior year period.  A decline in salaries and hourly wages from the January 2009 reduction in force contributed to the reduction in expenses in the current quarter as well as strict controls on other variable expenses.

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Other Income (Expense)

Other expense for the current quarter decreased to $228 from $250 for the same quarter of the prior year. The primary reason for the decrease is an increase in the value of our interest rate swaps in the current quarter, which decreased our interest expense.

Income Taxes

     Our effective tax rate for the quarter ended June 30, 2009 was a benefit of 20.9% compared to expense of 56.1% for the prior year period. The principal reason for the difference between the effective rate and the statutory rate was losses from continuing foreign operations for which no income tax benefit was recognized.  These losses resulted in the higher provision in the third quarter of fiscal 2008 and the lower benefit in the third quarter of the fiscal 2009.

Nine Months Ended June 30, 2009 Compared to Nine Months Ended June 30, 2008

Service and Product Revenues

Revenues for the nine months ended June 30, 2009 decreased 28.0% to $23,264 compared to $32,313 for the same period last year.

Our Service revenue decreased 32.1% to $17,423 in the first nine months of fiscal 2009 compared to $25,653 for the prior year period primarily as a result of decreases in bioanalytical analysis and toxicology revenues.  Our bioanalytical analysis revenues decreased $4,110, a 28.7% decrease from the same period in fiscal 2008, due to study delays by clients and decreases in new bookings for services.  Toxicology revenues decreased $3,207, or 36.7%, over the prior year period.  Study delays, cancellations and a decline in new orders contributed to the decline in revenues as our customers react to the global recession.  Though our revenues have declined versus prior year, the third fiscal quarter was encouraging with the highest revenues for any fiscal quarter this year.

Sales in our Products segment decreased 12.3% from $6,660 to $5,841 when compared to the same period in the prior year.  The majority of the decrease stems from sales of our Culex automated in vivo sampling system, which declined $1,034, or 28.3%.

Cost of Revenues

Cost of revenues for the first nine months of fiscal 2009 was $18,210 or 78.3% of revenue, compared to $19,952, or 61.7% of revenue for the prior year period.

Cost of Service revenue as a percentage of Service revenue increased to 90.6% in the first nine months of fiscal 2009 from 67.6% in the comparable period last year.  The principal cause of this increase was the decline in sales.  A significant portion of our costs of productive capacity in the Service segment are fixed.   Thus, decreases in revenues lead to increases in costs as a percentage of revenue.

Cost of Product revenue as a percentage of Product revenue in the nine months ending June 30, 2009 increased to 41.7% from 39.1% in the prior year period.   This increase is mainly due to slow moving inventory identified in the second fiscal quarter of $162 charged as an increase to cost of products sold as well as a change in the mix of products sold in the current fiscal year.

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Operating Expenses

Selling expenses for the nine months ended June 30, 2009 decreased 2.7% to $2,569 from $2,641 for the comparable period last year.  This decrease was primarily driven by lower salary and commission costs associated with the reduction in force in January 2009 and the decline in revenue versus the prior year.

Research and development expenses for the first nine months of fiscal 2009 increased 1.6% over the comparable period last year to $592 from $583. The increase was primarily attributable to severance accruals as well as spending for temporary labor utilized in our continued effort on the development of a new product funded by an NIH grant.

General and administrative expenses for the first nine months of fiscal 2009 increased 2.4% to $5,765 from $5,631 for the prior year period.  The increase is mainly due to expenses for attracting and hiring new management personnel in our West Lafayette facility; severance expenses for former employees of the Company; and higher consultant and legal fees.

Other Income (Expense)

Other expense for the first nine months of fiscal 2009 increased to $867 from $668 for the same period of the prior year. The primary reasons for the increase are a $110 net non-cash charge on our interest rate swaps due to the decline in short term interest rates and interest on capital leases added in the third quarter of fiscal 2008.

Income Taxes

Our effective tax rate for the nine months ended June 30, 2009 was a benefit of 22.3% compared to expense of 49.8% for the prior year period.  The principal reason for the difference between the effective rate and the statutory rate was losses from continuing foreign operations for which no income tax benefit was recognized.  These losses resulted in the higher provision last year and the lower benefit in the current year.

Discontinued Operations

On June 30, 2008, we sold the operating assets of our Baltimore Clinical Pharmacology Research Unit (“CPRU”) to Algorithme Pharma USA Inc. ("AP USA") and Algorithme Pharma Holdings Inc. ("Algorithme") for a cash payment of $850 and the assumption of certain liabilities related to the CPRU including the CPRU facility lease.   As a result, we exited the market for Phase I first-in-human clinical studies.  We remain contingently liable for $800 annually through 2015 for future financial obligations under the CPRU facility lease if AP USA and Algorithme fail to meet their lease commitment.

Accordingly, in the condensed consolidated statements of operations and cash flows, we have segregated the results of the CPRU as discontinued operations for the prior fiscal year.  The loss from discontinued operations in the prior fiscal year reflects the results of operations of the CPRU through the three and nine months of fiscal 2008.

Liquidity and Capital Resources

Comparative Cash Flow Analysis

Since our inception, BASi’s principal sources of cash have been cash flow generated from operations and funds received from bank borrowings and other financings. At June 30, 2009, we had cash and cash equivalents of $222, compared to cash and cash equivalents of $335 at September 30, 2008.

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Net cash provided by continuing operating activities was $1,216 for the nine months ended June 30, 2009 compared to $4,082 for the nine months ended June 30, 2008.  The decrease in cash provided by continuing operating activities in the current fiscal year partially results from a decrease in earnings from continuing operations as well as a decrease in deferred income taxes of $1,164.  These were partially offset by a decrease in accounts receivable of $3,176 as a result of the decline in sales.  Included in operating activities for the first nine months of fiscal 2009 are non-cash charges of $110 recorded to reflect the fair value of our interest rate swaps and $472 for impairment of goodwill for our UK operations.  The impact on operating cash flow of other changes in working capital was not material.

The decline in cash generated from operations, which is our primary source of cash, relates to our current operating loss. We experienced an operating loss in the first nine months of fiscal 2009 as compared to operating income in the prior year period as a result of a 28% year-to-date decrease in sales and a 1% increase in selling, general and administrative costs, which both significantly reduced our cash flow from operations.  The decline in sales was due to both a decrease in new bookings and delays by sponsors on projects previously booked.  This negative impact on our cash flow from operations began to slow in our third quarter of fiscal 2009.  Our total revenues of $8,121 represent the highest revenues of any quarter in fiscal 2009.  Service and Product revenues increased 15% from our second quarter.  Quotes and new orders have increased during the first six months of calendar 2009 compared to the last six months of calendar 2008.  The increase in selling, general and administrative costs in the first half of fiscal 2009 included one-time costs, such as severance for employees, recruiting fees for replacing former officers and marketing and advertising costs associated with our new marketing plan and branding.  These increased costs have not continued into the third quarter of fiscal 2009.  Compared to our second quarter in fiscal 2009, selling and general and administrative costs have decreased $800, or 28%, in our third fiscal quarter.  We expect the reduced spending levels of our third quarter to continue and that our efforts to reduce costs will impact the fourth quarter as well.

For compliance with our bank loan covenants, we compute EBITDA (earnings before interest, taxes, depreciation and amortization, removing other non-cash charges such as stock option expenses and deducting unfunded capital expenditures).  For the third quarter ended June 30, 2009, we generated positive EBITDA for the first time in fiscal 2009.  We also covered our fixed charges for interest, debt and lease amortization for the quarter for the first time in fiscal 2009.  We believe these improvements helped to enable us to obtain waivers with our banks for loan covenant violations and to amend the covenants for future periods as discussed below.

In January 2009, we completed a reduction in work force through both attrition and terminations, which we expect to reduce our annual compensation expense by approximately 12%.  This reduction impacted all areas of operations.  Also, in an effort to reduce operating costs, we agreed to amend certain termsand conditions of the May 2007 Employment Agreement with our CEO, Richard Shepperd, reducing his base salary by approximately 43%, to provide the Company with greater financial flexibility for the remainder of 2009.

Investing activities used $690 in the first nine months of fiscal 2009 due to capital expenditures. Our principal investments were for laboratory equipment replacements and upgrades in all of our facilities as well as general building and information technology infrastructure expenditures at all sites.  This is a 46% reduction in capital spending from the first nine months of fiscal 2008 as we strive to contain cash commitments throughout the organization, funding only necessary expenditures.

Financing activities used $1,432 in the first nine months of fiscal 2009 as compared to $2,565 used for the first nine months of fiscal 2008. The main use of cash in fiscal 2009 was for long term debt and capital lease payments of $900, as well as net payments on our line of credit of $532.  In fiscal 2008, we repaid the balance of our subordinated debt, approximately $4,500, which was partially offset by $1,400 of new borrowings, net borrowings on our line of credit of $1,244 and capital lease payments of $462.

Since the acquisition of the Baltimore clinic in fiscal 2003, we had consistently experienced negative cash flows from that operation.  With the sale of that operation on June 30, 2008, we eliminated a significant drain on operating cash flows.  During the nine months ended June 30, 2009, cash provided by operating activities for discontinued operations of $588 is mainly due to the collection of outstanding receivables.

Capital Resources

We have mortgage notes payable to Regions aggregating approximately $8,800 and a line of credit with National City of up to $3,000, which is subject to availability limitations that may substantially reduce or eliminate our borrowing capacity at any time, as described in Note 8 to our condensed consolidated financial statements. Borrowings under these credit agreements are collateralized by substantially all assets related to our operations and all common stock of our U.S. subsidiaries and 65% of the common stock of our non-United States subsidiaries. Under the terms of our credit agreements, we have agreed to restrict advances to subsidiaries, limit additional indebtedness and capital expenditures as well as to comply with certain financial covenants outlined in the borrowing agreements. All of these credit agreements contain cross-default provisions.

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On December 18, 2007, we entered into a loan agreement with Regions Bank (“Regions”) under which Regions loaned us $1,400 under a term loan maturing December 18, 2010. Interest on the loan is equal to LIBOR plus 215 basis points. Monthly payments are $12 plus interest. The loan is collateralized by real estate at our West Lafayette and Evansville, Indiana locations. Regions also holds approximately $7,700 of additional mortgage debt on these facilities.  We used a portion of the proceeds and cash on hand to repay our subordinated debt of approximately $4,500 during the first quarter of fiscal 2008.  We entered into interest rate swap agreements with respect to these loans to fix the interest rate at 6.1%.

Effective October 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (“FAS 157”) in order to account for the fair value of the interest rate swaps in our condensed consolidated financial statements.  The fair value of the swaps was determined with a level two analysis.  As a result of recent declines in short term interest rates, the swaps had a negative fair value of $110 at June 30, 2009 and $0 at September 30, 2008, which was recorded in our condensed consolidated financial statements as interest expense and long term liability.  The fair value of these swaps was not material to the condensed consolidated financial statements in the comparable period of the prior fiscal year.  The terms of the interest rate swaps match the scheduled principal outstanding under the loans.  We do not intend to prepay the loans, and expect the swaps to expire under their terms in two years without payment by us.  Upon expiration of the swaps, the net fair value recorded in the condensed consolidated financial statements is expected to be zero.

The covenants in our loan agreements with Regions require us to maintain certain ratios including a fixed charge coverage ratio and total liabilities to tangible net worth ratio.  The Regions loans both contain cross-default provisions with each other and with the revolving line of credit with National City described below.  At December 31, 2008 and March 31, 2009, we were not in compliance with our fixed charge coverage ratio.  On February 17, 2009, Regions agreed to waive our violation of our fixed charge coverage ratio covenant through the end of our second fiscal quarter of the current year.  On May 18, 2009, Regions agreed to amend the computations and requirements for the fixed charge coverage ratios through December 31, 2009.  After that date, the computations and requirements for the fixed charge coverage ratio will revert to those in the original agreement.  The amended computations will be less restrictive to us.  At June 30, 2009, we were in compliance with the amended fixed charge covenant ratio.

Revolving Line of Credit

Through December 31, 2009, we have a revolving line of credit (“Agreement”), with National City, which we use for working capital and other purposes. Borrowings under the Agreement are collateralized by substantially all assets related to our operations, other than the real estate securing the Regions loans, all common stock of our United States subsidiaries and 65% of the common stock of our non-United States subsidiaries. Under the Agreement, the Company has agreed to restrict advances to subsidiaries, limit additional indebtedness and capital expenditures and comply with certain financial covenants outlined in the Agreement.

The covenants in the Agreement require that we maintain certain ratios of interest-bearing indebtedness to EBITDA and net cash flow to debt servicing requirements, which may restrict the amount we can borrow to fund future operations, acquisitions and capital expenditures.  The Agreement also contains cross-default provisions with the Regions loans.  For the current fiscal year through March 31, 2009, we were not in compliance with the fixed charge coverage ratio covenant and tangible net worth covenant with National City.

On July 17, 2009, we executed a Fourth Amendment to the Amended and Restated Credit Agreement with National City.  In fiscal 2009, prior to the Fourth Amendment, we had been operating in breach of the fixed charge coverage ratio and tangible net worth covenants.  Under the amended Agreement, National City has agreed to waive our violations of the fixed charge coverage ratio covenant and the tangible net worth covenant through the end of our third fiscal quarter of the current year.  National City also agreed to amend the computations and requirements for the fixed charge coverage ratios and the tangible net worth ratio through December 31, 2009. These computations will be less restrictive for us.

The amended Agreement limits outstanding borrowings to the “borrowing base,” as defined in the Agreement, up to a maximum available amount of $3,000.  Borrowings bear interest at an annual rate equal to LIBOR plus five percent (5%).  In the event that LIBOR shall become unavailable, the outstanding principal balance of borrowings under the line of credit shall bear interest at an annual rate equal to the Prime Rate plus two percent (2%). Interest is paid monthly.  The line of credit also carries a fee, payable quarterly, for the portion of the line which is unused, minus the amount of all letters of credit.

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.Based on our current business activities and cash on hand, we expect to continue to borrow on our revolving credit facility to finance working capital.  To conserve cash, we instituted a freeze on “unnecessary” capital expenditures.  As of June 30, 2009, we had $3,359 of total borrowing capacity (subsequently limited to $3,000 by the amendment), of which $1,491 was outstanding, and $222 of cash on hand.

The $1,089 decrease in our total borrowing capacity from the fiscal year ended September 30, 2008 was due to several factors.  Declining sales in the first half of fiscal 2009 led to a lower accounts receivable balance, which reduces the total borrowing capacity.  As discussed above, the sales decline, which was due to lower new bookings and sponsor delays, began to slow in the third quarter of the current fiscal year.  Revenues in our third fiscal quarter increased 15% over our second fiscal quarter and our accounts receivable balance increased slightly in the current quarter as well.  Although our third quarter revenue and cash flow have shown gains over the first half of fiscal 2009, failure to continue to improve revenue and control expenses could severely impair our ability to continue operations.

With the decrease in cash flow from operations discussed above, we may face additional situations during fiscal 2009 where we are not in compliance with at least one covenant in the Agreement, requiring that we obtain another waiver at that time.  If that situation arises, we will face dealing with our lending banks again to obtain loan modifications or waivers as described above.  We cannot predict whether our lenders will provide those waivers, if required, what the terms of any such waivers might be or what impact any such waivers will have on our liquidity, financial condition or results of operations.

ITEM 4 - CONTROLS AND PROCEDURES

During the preparation of the consolidated financial statements for the year ended September 30, 2008, we identified differences in the amounts of deferred and refundable income taxes in our books and records as compared to the amounts included in our income tax returns.    To verify the amount and the nature of the difference, we elected to delay the filing of our annual report on Form 10-K. We concluded that the difference was related to an overstatement of our unrecognized tax liability and the related error in recording our liability for uncertain tax positions upon our adoption of FIN 48 on October 1, 2007, the beginning of our previous fiscal year.  The failure to identify this difference and resulting error in adopting FIN 48 through our normal financial statement preparation process caused us to conclude that we had a material weakness in our accounting for income taxes and that our internal controls over financial reporting were not effective as of September 30, 2008.  To prevent a recurrence of similar errors in future years, we have initiated a better process of tracking our liabilities, have added layers of review and are investigating commercially available software that will accurately maintain and track the differences between financial reporting and tax return reporting.

There were no other changes in our internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the first nine months of fiscal 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our management concluded that our disclosure controls and procedures were effective as of June 30, 2009 in providing reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the rules and forms of the Securities and Exchange Commission, including to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decision regarding required disclosure.  There are inherent limitations to the effectiveness of systems of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.  Accordingly, even effective systems of disclosure controls and procedures can provide only reasonable assurances of achieving their control objectives.

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PART II

ITEM 1A - RISK FACTORS

Change of Control

On July 29, 2009 Peter T. Kissinger and Candice B. Kissinger delivered to the Company a demand for a special meeting of shareholders and notice of nomination of Directors of Bioanalytical Systems, Inc., and concurrently filed schedule 14A with the Securities and Exchange Commission.  The purpose of the demand is to hold a shareholders meeting with the intent of electing the four nominated directors named in their demand to replace four of the five existing Directors currently on the Company’s Board.  Such an action, if successful, is a defined change of control in the Company’s loan agreement with National City Bank, and would constitute a default under the terms of the agreement.  The Company may not be able to renegotiate the terms of its loan if such an event of default occurs, and may have to seek other banking arrangements or other forms of financing which may be more expensive and dilutive to shareholders, if available at all.

You should also carefully consider the risks described in our Quarterly Report on Form 10-Q for the three months ended December 31, 2008 and our Annual Report on Form 10-K for the year ended September 30, 2008, including those under the heading “Risk Factors” appearing in Item 1A of Part I of the Form 10-Q and Form 10-K and other information contained in this Quarterly Report before investing in our securities. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.

 ITEM 6 - EXHIBITS

(a) Exhibits:

Number		Description of Exhibits
(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 Amended and Restated Bylaws of Bioanalytical Systems, Inc., as subsequently amended (filed herewith).
(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).
(10)	10.1	Fourth Amendment to Amended and Restated Credit Agreement between Bioanalytical Systems, Inc. and National City Bank, executed July 17, 2009 (incorporated by reference to Exhibit 10.1 to Form 8-K filed July 17, 2009).
	10.2	Replacement Promissory Note by and between Bioanalytical Systems, Inc. and National City Bank, executed July 17, 2009 (filed herewith).
	10.3	Replacement Subsidiary Guaranty by and between Bioanalytical Systems Inc. and National City Bank, executed July 17, 2009 (filed herewith).
(31)	31.1	Certification of Richard M. Shepperd (filed herewith).
	31.2	Certification of Michael R. Cox (filed herewith).
(32)	32.1	Written Statement of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) (filed herewith)..

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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.
	(Registrant)
Date:   August 12, 2009	By:	/s/  Richard M. Shepperd
	Richard M. Shepperd
	President and Chief Executive Officer
Date:  August 12, 2009	By:	/s/  Michael R. Cox
	Michael R. Cox
	Vice President, Finance and Administration, Chief Financial Officer and Treasurer

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EX-3.2

AMENDED AND RESTATED BYLAWS OF

BIOANALYTICAL SYSTEMS, INC.

(Including Amendments through July 29, 2009)

ARTICLE I.

Records Pertaining To Share Ownership

Section 1.1. Recognition of Shareholders. Bioanalytical Systems, Inc. (the "Corporation") is entitled to recognize a person registered on its books as the owner of shares of the Corporation as having the exclusive right to receive dividends and to vote those shares, notwithstanding any other person's equitable or other claim to, or interest in, those shares.

Section 1.2. Transfer of Shares. Shares are transferable only on the books of the Corporation, subject to any transfer restrictions imposed by the Articles of Incorporation, these Bylaws, or an agreement among shareholders and the Corporation. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. Shares may be so transferred either (a) upon presentation of the certificate representing the shares, endorsed by the appropriate person or persons, and accompanied by (i) reasonable assurance that those endorsements are genuine and effective, and (ii) a request to register the transfer; or (b) in any manner described in any rule or regulation promulgated by the Board under this Section 1.2. Transfers of shares are otherwise subject to the provisions of the Indiana Business Corporation Law (the "Act"), Article 8 of the Indiana Uniform Commercial Code and federal securities laws.

Section 1.3. Certificates. Each shareholder is entitled to a certificate signed (manually or in facsimile) by the President or a Vice President and the Secretary or an Assistant Secretary, setting forth (a) the name of the Corporation and that it was organized under Indiana law, (b) the name of the person to whom issued, (c) the number, class, and series of shares represented, and (d) a conspicuous statement that the Corporation will furnish to the holder of the certificate on request, in writing, and without charge, a summary of the designations, relative rights, preferences, and limitations applicable to each such class of shares, and the variations in rights, preferences, and limitations determined for each series within a class (and the authority of the Board of Directors to determine variations for future series). The Board of Directors shall prescribe the form of the certificate. Notwithstanding the foregoing, the Board of Directors may determine for any reason, including, for example, to qualify for any direct registration program, that some or all of any class and/or series of shares may be uncertificated; provided, however, that no such determination shall apply to any shares represented by a certificate until the certificate is surrendered in accordance with Section 1.2.

Section 1.4. Lost or Destroyed Certificates. A new certificate may be issued to replace a lost or destroyed certificate. Unless waived by the Board of Directors, the shareholder in whose name the certificate was issued shall make an affidavit or affirmation of the fact that the certificate is lost or destroyed, shall advertise the loss or destruction in such manner as the Board of Directors may require, and shall give the Corporation a bond of indemnity in the amount and form which the Board of Directors may prescribe.

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ARTICLE II.

Meetings of the Shareholders

Section 2.1. Annual Meetings. Annual meetings of the shareholders shall be held on the second Monday in February of each year, or on such other date as may be designated by the Board of Directors.

Section 2.2. Special Meetings. Special meetings of the shareholders may be called by the President or by the Board of Directors. Special meetings of the shareholders shall be called upon delivery to the Secretary of the Corporation of one or more written demands for a special meeting of the shareholders describing the purposes of that meeting and signed and dated by the holders of at least 25% of all the votes entitled to be cast on any issue proposed to be considered at that meeting.

Section 2.3. Notice of Meetings. The Corporation shall deliver or mail written notice stating the date, time, and place of any shareholders' meeting and, in the case of a special shareholders' meeting or when otherwise required by law, a description of the purposes for which the meeting is called, to each shareholder of record entitled to vote at the meeting, at such address as appears in the records of the Corporation and at least 10, but no more than 60, days before the date of the meeting. A shareholders' meeting shall be held at such place, either in or out of the State of Indiana, as may be specified by the Board of Directors in the respective notice for such meeting.

Section 2.4. Waiver of Notice. A shareholder may waive notice of any meeting, before or after the date and time of the meeting as stated in the notice, by delivering a signed waiver to the Corporation for inclusion in the minutes. A shareholder's attendance at any meeting, in person or by proxy (a) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (b) waives objection to consideration of a particular matter at the meeting that is not within the purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.

Section 2.5. Record Date. The Board of Directors may fix a record date, which may be a future date, for the purpose of determining the shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote, or to take any other action. A record date shall be at least 10, but not more than 70, days before the meeting or action requiring a determination of shareholders. If the Board of Directors does not fix a-record date, the record date shall be the 10th day prior to the date of the meeting or other action.

Section 2.6. Voting by Proxy. A shareholder may appoint a proxy to vote or otherwise act for the shareholder pursuant to a written appointment form executed by the shareholder or the shareholder's duly authorized attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent of the Corporation authorized to tabulate votes. The general proxy of a fiduciary is given the same effect as the general proxy of any other shareholder. A proxy appointment is valid for 11 months unless otherwise expressly stated in the appointment form.

Section 2.7. Voting Lists. Following the record date for a shareholders' meeting, the Secretary shall prepare an alphabetical list of all shareholders entitled to notice of the meeting, arranged by voting group and within each voting group by class and series, and showing the address and number of shares held by each shareholder. The list shall be kept on file at the principal office of the Corporation or at a place identified in the meeting notice in the city where the meeting will be held. The list shall be available for inspection and copying by any shareholder entitled to vote at the meeting, or by the shareholder's agent or attorney authorized in writing, at any time during regular business hours, beginning 5 business days before the date of the meeting through the meeting. The list shall also be made available to any shareholder, or to the shareholder's agent or attorney authorized in writing, at the meeting and any adjournment thereof. Failure to prepare or make available a voting list with respect to any shareholder's meeting shall not affect the validity of any action taken at such meeting.

Section 2.8. Quorum; Approval. At any meeting of shareholders, a majority of the votes entitled to be cast on a matter by a voting group at the meeting constitutes a quorum of that voting group. If a quorum of a voting group is present when a vote is taken, action on a matter is approved by that voting group if the votes cast in favor of the action exceed the votes cast in opposition to the action, unless a greater number is required by law, the Articles of Incorporation, or these Bylaws. If more than one voting group is entitled to vote on a matter, approval by each voting group is required for the matter to be approved by the shareholders as a whole.

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ARTICLE III.

Board of Directors

Section 3.1. Powers and Duties. All corporate powers are exercised by or under the authority of, and the business and affairs of the Corporation are managed under the direction of, the Board of Directors, unless otherwise provided in the Articles of Incorporation.

Section 3.2. Number and Terms of Office; Qualifications. The total number of directors of the Corporation shall be that specified or fixed in a resolution of the Board of Directors, but in no event shall the Corporation have fewer than one director.  Directors are elected at each annual shareholders' meeting and serve for a term expiring at the following annual shareholders' meeting.  A director who has been removed pursuant to Section 3.3 ceases to serve immediately upon removal; otherwise, a director whose term has expired continues to serve until a successor is elected and qualifies or until there is a decrease in the number of directors. A person need not be a shareholder or an Indiana resident to qualify to be a director.

Section 3.2.1 Nomination of Directors. (a) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of shareholders, or at any special meeting of shareholders called for the purpose of electing directors, (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any shareholder of the Corporation (1) who is a shareholder of record on the date of the giving of the notice provided for in this Section 3.2.1 and on the record date for the determination of shareholders entitled to notice of and to vote at such meeting and (2) who complies with the notice procedures set forth in this Section 3.2.1.

(b) In addition to any other applicable requirements, for a nomination to be made by a shareholder, such shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

(c) To be timely, a shareholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting; and (b) in the case of a special meeting of shareholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.

(d) If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders. In the event of a change of address, such shareholder shall file with the Secretary of the Corporation a written request that such shareholder's address be changed in the records of the Corporation, in which event notices to such shareholder shall be directed to such shareholder at such other address.

(e) To be in proper written form, a shareholder's notice to the Secretary must set forth (i) as to each person whom the shareholder proposes to nominate for election as a director (1) the name, age, business address and residence address of the person, (2) the principal occupation or employment of the person, (3) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person, and (4) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (ii) as to the shareholder giving the notice (1) the name and record address of such shareholder, (2) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such shareholder, (3) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (4) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice, and (5) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

(f) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.2.1. The Chair of the Nominating Committee or his or her designee shall have the authority to determine whether a nomination is properly made in accordance with the foregoing procedures. If the Chair of the Nominating Committee or his or her designee determines that a nomination was not made in accordance with the foregoing procedures, the chairman of the meeting shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

3

Section 3.3. Removal. Subject to any limitations on, and requirements for, removal of directors contained in the Articles of Incorporation, any director may be removed with or without cause by action of the shareholders taken at any meeting the notice of which states that one of the purposes of the meeting is removal of the director.

Section 3.4. Vacancies. Subject to any provisions concerning the filling of vacancies contained in the Articles of Incorporation, if a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors, the Board of Directors may fill the vacancy; and if the directors remaining in office constitute fewer than a quorum of the Board, the directors remaining in office may fill the vacancy by the affirmative vote of a majority of those directors. Any director elected to fill a vacancy holds office until the next annual meeting of the shareholders and/or until a successor is elected and qualifies.

Section 3.5. Annual Meetings. Unless otherwise agreed by the Board of Directors, the annual meeting of the Board of Directors shall be held immediately following the annual meeting of the shareholders, at the place where the meeting of shareholders was held, for the purpose of electing officers and considering any other business which may be specifically set forth in the notice of the meeting.

Section 3.6. Regular and Special Meetings. Regular meetings of the Board of Directors may be held pursuant to a resolution of the Board of Directors establishing a method for determining the date, time, and place of those meetings. Special meetings of the Board of Directors may be held upon the call of the President or of any one director.

Section 3.7. Notice and Agenda. Notice of a meeting may be waived in writing before or after the time of the meeting. The waiver must be signed by the director entitled to the notice and filed with the minutes of the meeting. A director's attendance at or participation in a meeting waives any required notice of the meeting, unless at the beginning of the meeting (or promptly upon the director's arrival) the director objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. All notices of a meeting of the Board of Directors shall include an agenda specifically setting forth in reasonable detail any and all matters to be officially acted upon at such meeting.

Section 3.8. Quorum. A quorum for the transaction of business at any meeting of the Board of Directors consists of a majority of the number of directors then in office. In all cases, except as otherwise expressly required by the Act or the Articles of Incorporation, the approval or consent of a majority of the directors then in office shall be required in order to authorize or approve actions or other matters presented to the Board of Directors.

Section 3.9. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if the action is taken by all directors then in office. The action must be evidenced by one or more written consents describing the action taken, signed by each director, and included in the minutes. Action of the Board of Directors taken by consent is effective when the last director signs the consent, unless the consent specifies a prior or subsequent effective date.

Section 3.10. Committees. The Board of Directors may create one or more committees and appoint members of the Board of Directors to serve on them. Each committee may have one or more members, who serve at the pleasure of the Board of Directors. All rules applicable to action by the Board of Directors apply to committees and their members. The Board of Directors may specify the authority that a committee may exercise; however, a committee may not (a) authorize distributions, except a committee may authorize or approve a reacquisition of shares if done according to a formula or method prescribed by the Board of Directors, (b) approve or propose to shareholders action that must be approved by shareholders, (c) fill vacancies on the Board of Directors or on any of its committees, (d) amend the Articles of Incorporation, (e) adopt, amend, or repeal these Bylaws, (f) approve a plan of merger not requiring shareholder approval, or (g) authorize or approve the issuance or sale or a contract for the sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares.

Section 3.11. Presence. The Board of Directors may permit any or all directors to participate in any annual, regular, or special meeting by any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director so participating is deemed to be present in person at the meeting.

Section 3.12. Compensation. Each director shall receive such compensation for service as a director as may be fixed by the Board of Directors.

Section 3.13. Opt Out of IC 23-1-33-6(c).  The Corporation elects not to be governed by the provisions of Indiana Code § 23-1-33-6(c).

4

ARTICLE IV.

Officers

Section 4.1. Officers. The Corporation shall have a Chairman of the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers as the Board of Directors or the President designates. The Board of Directors or the President may designate one or more Vice Presidents to serve as Executive Vice Presidents or Senior Vice Presidents. The same individual may simultaneously hold more than one office.

Section 4.2. Terms of Office. Officers are elected at each annual meeting of the Board of Directors and serve for a term expiring at the following annual meeting of the Board of Directors. An officer who has been removed pursuant to Section 4.4 ceases to serve as an officer immediately upon removal; otherwise, an officer whose term has expired continues to serve until a successor is elected and qualifies.

Section 4.3. Vacancies. If a vacancy occurs among the officers, the Board of Directors may fill the vacancy. Any officer elected to fill a vacancy holds office until the next annual meeting of the Board of Directors and until a successor is elected and qualifies.

Section 4.4. Removal. Any officer may be removed by the Board of Directors at any time with or without cause.

Section 4.5. Compensation. Each officer shall receive such compensation for service in office as may be fixed by the Board of Directors.

Section 4.6. President. The President is the chief executive officer of the Corporation and is responsible for managing and supervising the affairs and personnel of the Corporation, subject to the general control of the Board of Directors. The President, or proxies appointed by the President, may vote shares of other corporations owned by the Corporation. The President has authority to execute, with the Secretary (as required), powers of attorney appointing other corporations, partnerships, entities or individuals as the agents of the Corporation, subject to law, the Articles of Incorporation and these Bylaws. The President has such other powers and duties as the Board of Directors may from time to time prescribe. The President has such other powers and duties as the Board of Directors may from time to time prescribe.

Section 4.7. Vice Presidents. The Vice Presidents shall have such powers and perform such duties as the President and the Board of Directors may from time to time prescribe. The Vice Presidents (in order of seniority) shall have all the powers of, and perform all the duties incumbent upon, the President during the President's absence or disability.

Section 4.8. Secretary. The Secretary is responsible for (a) attending all meetings of the shareholders and the Board of Directors, (b) preparing true and complete minutes of the proceedings of all meetings of the shareholders, the Board of Directors, and all committees of the Board of Directors, (c) maintaining and safeguarding the books (except books of account) and records of the Corporation, and (d) authenticating the records of the Corporation. If required, the Secretary attests the execution of deeds, leases, agreements, powers of attorney, certificates representing shares of the Corporation, and other official documents by the Corporation. The Secretary serves all notices of the Corporation required by law, the Board of Directors, or these Bylaws. The Secretary has such other duties as the Board of Directors may from time to time prescribe.

Section 4.9. Treasurer. The Treasurer is responsible for (a) keeping correct and complete books of account which show accurately at all times the financial condition of the Corporation, (b) safeguarding all funds, notes, securities, and other valuables which may from time to time come into the possession of the Corporation, and (c) depositing all funds of the Corporation with such depositories as the Board of Directors shall designate. The Treasurer shall furnish at meetings of the Board of Directors, or when otherwise requested, a statement of the financial condition of the Corporation. The Treasurer has such other duties as the Board of Directors may from time to time prescribe.

Section 4.10. Other Officers. The Board of Directors or the President may from time to time designate and elect other officers (including assistant officers) who shall have such powers and duties as the President, the Board of Directors, or if assistant officer, the officers whom they are elected to assist, specify and delegate to them, and such other powers and duties as the Board of Directors or the President may from time to time prescribe. An Assistant Secretary may, during the absence or disability of the Secretary, discharge all responsibilities imposed upon the Secretary of the Corporation, including, without limitation, attest the execution of all documents by the Corporation.

Section 4.11. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the shareholders and of the Board of Directors and shall have such other duties, powers and responsibilities as are assigned to the Chairman of the Board by the Board of Directors from time to time.

5

ARTICLE V.

Miscellaneous

Section 5.1. Records. The Corporation shall keep as permanent records minutes of all meetings of the shareholders, the Board of Directors, and all committees of the Board of Directors, and a record of all actions taken without a meeting by the shareholders, the Board of Directors, and all committees of the Board of Directors. The Corporation or its agent shall maintain a record of the shareholders in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each. The Corporation shall maintain its records in written form or in a form capable of conversion into written form within a reasonable time. The Corporation shall keep a copy of the following records at its principal office: (a) the Articles of Incorporation then currently in effect, (b) the Bylaws then currently in effect, (c) all resolutions adopted by the Board of Directors with respect to one or more classes or series of shares and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding, (d) minutes of all shareholders' meetings, and records of all actions taken by shareholders without a meeting, for the past 3 years, (e) all written communications to shareholders generally during the past 3 years, including annual financial statements furnished upon request of the shareholders, (f) a list of the names and business addresses of the current directors and officers, and (g) the most recent annual report filed with the Indiana Secretary of State.

Section 5.2. Execution of Contracts and Other Documents. Unless otherwise authorized or directed by the Board of Directors, all written contracts and other documents entered into by the Corporation shall be executed on behalf of the Corporation by the President or a Vice President, and, if required, attested by the Secretary or an Assistant Secretary.

Section 5.3. Accounting Year. The accounting year of the Corporation begins on October l of each year and ends on the September 30 immediately following.

Section 5.4. Corporate Seal. The Corporation has no seal.

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ARTICLE VI.

Amendment

These Bylaws may be amended or repealed only by the Board of Directors.

7

EX-10.2

REPLACEMENT PROMISSORY NOTE

$3,000,000.00	Dated: July _____, 2009
	Indianapolis, Indiana

FOR VALUE RECEIVED, the undersigned BIOANALYTICAL SYSTEMS, INC., an Indiana corporation (the “Borrower”), hereby promises to pay to the order of NATIONAL CITY BANK, as successor by merger to National City Bank of Indiana (“Bank”), or its assigns, at its principal office at Indianapolis, Indiana, or at such other place as the holder hereof may designate in writing, in lawful money of the United States of America and in immediately available funds, the principal sum of Three Million Dollars ($3,000,000.00), or so much thereof as may be advanced and outstanding from time to time, together with interest on the unpaid principal balance existing from time to time at the per annum rates and on the dates set forth in the Agreement (hereinafter defined).  The entire unpaid balance of principal, and all accrued and unpaid interest thereon, shall be due and payable on the Line of Credit Maturity Date, and Borrower shall make such mandatory principal payments as are required to be made under the terms of Section 2.3 of the Agreement.

Bank shall, and is hereby authorized to, record in accordance with its usual practice, the date and amount of each advance and each principal payment hereunder.

This Note is issued pursuant to, is entitled to the benefit of, and is subject to the provisions of that certain Amended and Restated Credit Agreement between Borrower and Bank dated as of January 4, 2005, as amended January 16, 2007, as further amended October 24, 2007, as further amended January 16, 2009, and as further amended of even date herewith (as amended, and as the same may be further amended from time to time (the “Agreement”).  Advances under this Note shall be made in accordance with the Agreement.  The Agreement, among other things, contains a description of the collateral securing this Note, the definitions of the proper nouns used herein and provisions for acceleration of the maturity hereof upon the happening of certain stated events.

Subject to the terms of the Agreement, Borrower may borrow, repay, reborrow and repay the principal amount of this Note at any time and from time to time.

If Borrower fails to make the payment of any installment of principal or interest, as provided in the Agreement, when due, or upon the occurrence of any other Default, then in any of such events, or at any time thereafter prior to such Default being cured, the entire principal balance of this Note, and all accrued and unpaid interest thereon, irrespective of the maturity date specified herein, together with reasonable attorneys’ fees and other costs incurred in collecting or enforcing payment or performance hereof and with interest from the date of Default on the unpaid principal balance hereof at the Default rate specified in the Agreement, shall, at the election of the holder hereof (except as otherwise provided for automatic acceleration on the occurrence of certain Defaults specified in the Agreement), and without relief from valuation and appraisement laws, become immediately due and payable.

REPLACEMENT PROMISSORY NOTE Page 1

If any payment is not received by Bank within ten (10) days after its due date, Bank may assess and Borrower agrees to pay a late fee equal to the greater of: (a) five percent (5%) of the past due amount, or (b) Twenty Dollars ($20.00).  This late fee shall be in addition to, and not in lieu of, any other remedy Bank may have and is in addition to any reasonable fees and charges of any attorneys which Bank is entitled to employ, whether authorized herein or by law.

Borrower and all endorsers, guarantors, sureties, accommodation parties hereof and all other parties liable or to become liable for all or any part of this indebtedness, severally waive demand, presentment for payment, notice of dishonor, protest and notice of protest and expressly agree that this Note and any payment coming due under it may be extended or otherwise modified from time to time without in any way affecting their liability hereunder.

This Note completely replaces that certain Replacement Promissory Note dated October 24, 2007 from Borrower to Bank in the face amount of $5,000,000 (the "Replacement Promissory Note"), and continues to evidence the indebtedness evidenced by such Replacement Promissory Note.  Bank shall mark the Replacement Promissory Note “replaced” and return the Replacement Promissory Note to Borrower promptly upon Borrower's execution and delivery to Bank of this Note  to Bank.

This Note shall be construed according to and governed by the laws of the State of Indiana.  Notice of acceptance of this Note is hereby waived by Borrower.

Any action, claim, counterclaim, cross-claim, proceeding, or suit, whether at law or in equity, whether sounding in tort, contract, or otherwise at any time arising under or in connection with this Note or any other Loan Document, the administration, enforcement, or negotiation of this Note or any other Loan Document, or the performance of any obligation in respect of this Note or any other Loan Document (each such action, claim, counterclaim, cross-claim, proceeding, or suit, an “Action”) may be brought in any federal or state court located in Marion County, Indiana.  Borrower hereby unconditionally submits to the jurisdiction of any such court with respect to each such Action and hereby waives any objection Borrower may now or hereafter have to the venue of any such Action brought in any such court.  BORROWER HEREBY, AND EACH HOLDER OF THIS NOTE, BY TAKING POSSESSION HEREBY, KNOWINGLY AND VOLUNTARILY WAIVES JURY TRIAL IN RESPECT OF ANY ACTION.

[signatures on following pages]

REPLACEMENT PROMISSORY NOTE Page 2

IN WITNESS WHEREOF, Borrower has caused this Note to be executed by its duly authorized officer as of the day and year first hereinabove written.

BIOANALYTICAL SYSTEMS, INC.

By:

Printed:

Its:

STATE OF INDIANA	)
	)SS:
COUNTY OF ____________	)

Personally appeared before me, a Notary Public in and for said County and State, _________________________, ____________________ of said corporation, known to me as the person named herein, who after being duly sworn upon his oath, stated to me that he has been duly authorized and empowered to execute the foregoing Agreement on behalf of said corporation.

In Witness Whereof, I have hereunto set my hand and Notarial Seal, this _______ day of July, 2009.

My Commission Expires:
	Notary
My County of Residence:
	Printed

REPLACEMENT PROMISSORY NOTE Page 3

EX-10.3

REAFFIRMATION OF GUARANTY

The undersigned, being the Subsidiary Guarantor of the obligations of BIOANALYTICAL SYSTEMS, INC. (the “Borrower”) to NATIONAL CITY BANK (the “Bank”), hereby consents to the Fourth Amendment to Amended and Restated Credit Agreement between the Bank and the Borrower, and further agrees that the execution and delivery of such Fourth Amendment shall in no way affect, impair, discharge, relieve or release the obligations of the undersigned under its Replacement Subsidiary Guaranty dated as of January 4, 2005 in favor of the Bank, which obligations are hereby ratified, confirmed and reaffirmed in all respects and shall continue in full force and effect, until all obligations of the Borrower to the Bank are fully, finally and irrevocably paid and performed.

Dated July _____, 2009.

SUBSIDIARY GUARANTOR

BAS EVANSVILLE, INC.

By:

Printed:

Its:

STATE OF INDIANA	)
	)SS:
COUNTY OF ____________	)

Personally appeared before me, a Notary Public in and for said County and State, _________________________, ____________________ of said corporation, known to me as the person named herein, who after being duly sworn upon his oath, stated to me that he has been duly authorized and empowered to execute the foregoing Agreement on behalf of said corporation.

In Witness Whereof, I have hereunto set my hand and Notarial Seal, this _______ day of July, 2009.

My Commission Expires:
	Notary
My County of Residence:
	Printed

EX-31.1

CERTIFICATIONS

I, Richard M. Shepperd, Chief Executive Officer, certify that:

1. I have reviewed this report on Form 10-Q of Bioanalytical Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions);

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	/s/  Richard M. Shepperd
Date:  August 12, 2009	Richard M. Shepperd Chief Executive Officer

EX-31.2

CERTIFICATIONS

I, Michael R. Cox, Chief Financial Officer, certify that:

1. I have reviewed this report on Form 10-Q of Bioanalytical Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	/s/  Michael R. Cox
Date:  August 12, 2009	Michael R. Cox Chief Financial Officer

EX-32.1

Certifications of Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906

Of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

The undersigned, the Chief Executive Officer and the Vice President, Finance and Administration and Chief Financial Officer of Bioanalytical Systems Inc. (the “Company”), each hereby certifies that, to the best of his knowledge:

(a) the Form 10-Q Quarterly Report of the Company for the quarter ended June 30, 2009 filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company..

By:  /s/  Richard M. Shepperd

Richard M. Shepperd

President and Chief Executive Officer

Date:  August 12, 2009

By:  /s/  Michael R. Cox

Michael R. Cox

Vice President, Finance and Administration

and Chief Financial Officer

Date:  August 12, 2009