2006 ANNUAL REPORT

December 28, 2006

Dear BASi Shareholders,

Fiscal 2006 was one of the more difficult years in the history of our company. We experienced record losses with only a modest increase in revenue, but importantly, we took definitive actions and developed tactics that we believe increase the probability of a successful future for BASi. The losses, in part, reflect our problems in properly sizing our operations for our volume of business, resulting in underutilized capacity. The difficulty of integrating new service capabilities from recent acquisitions into our business development activities has also slowed our revenue growth. During the past fiscal year, the problems in our Baltimore clinical unit, including the loss of a major customer due to its acquisition, resulted in a sizeable impairment charge in the third quarter. During fiscal 2006 we addressed staffing issues through reductions in our Baltimore, United Kingdom, and West Lafayette operations, adding additional short-term costs for severance. This rightsizing positions us for profitable operations in fiscal 2007. Increased sales efforts and development of new, more profitable market segments have positioned us for revenue growth in our Baltimore operation. We expect to build strong customer relationships for all our service businesses to assure more consistent revenue growth. During this time, our markets and development opportunities have remained strong, offering a promising future for the Company.

I was recruited by the Company as President and CEO to address the issues of revenue and profitability. We have implemented aggressive new programs from which we expect to see improved future results. Working with a newly invigorated team of experienced managers within the Company, dedicated to revenue growth and cost control, we have developed a tactical plan for fiscal 2007 with a sharp focus on obtaining budgeted revenues based on attainable growth plans using current capacity. We have identified specific targets for profitability from each of our business units and created an adaptive organization responsive to changing business conditions to maintain our focus on achieving our objectives.

The Company now has a full strength Business Development team deployed in the US and in the UK/Europe intent on increasing revenues. Since the beginning of our new fiscal year, we have increased productivity in our three Bioanalytical laboratories in West Lafayette, Indiana, McMinnville, Oregon and the United Kingdom, and are keeping our Evansville, Indiana Pre-Clinical operations near capacity. We now have new management and clinic personnel in Baltimore who are dedicated to success. We are installing a number of Culex® instruments around the world, introducing new in-vivo products and growing our Pharmacokinetics/Pharmacodynamics Services business in West Lafayette. We are rebuilding our Information Technology Department from the ground up to meet the needs of our scientific operations and our evolving financial information system. We have set defined financial goals for our management at all levels, and have improved the timeliness of financial reporting in order to give them the information they need to respond to changing results.

Building on the positive steps taken in fiscal 2006, we begin fiscal 2007 with a great deal of optimism and purpose. We continue to evaluate all facets of our businesses with the objective of achieving strong financial returns for our shareholders, and providing a stable environment for our many excellent employees. The BASi team is committed to our plan for profitability, and dedicated to building shareholder value.

Sincerely,

/s/  Richard M. Shepperd

Richard M. Shepperd
President and CEO

Board of Directors Peter T. Kissinger, Ph.D.
Chairman and Chief Scientific Officer

Candice B. Kissinger
Senior Vice President and Research Director
Corporate Secretary

William E. Baitinger*
Special Assistant to the Vice President for Research
Purdue University

Leslie B. Daniels*
Principal
CAI Advisors & Co., LLP

David W. Crabb, M.D.*
Chairman
Indiana University Department of Medicine


* Audit Committee Member Annual Meeting of Shareholders February 15, 2007
BASi Corporate Center
West Lafayette, Indiana


Auditors Crowe Chizek and Company LLC
Indianapolis, Indiana


Transfer Agent Corporate Trust Department
National City Bank
1900 East 9th Street
Cleveland, Ohio 44114


Common Shares Bioanalytical Systems, Inc. common shares are traded on the NASDAQ National Market System under the symbol BASI.

The following table sets forth by calendar quarter the high and low
sales prices of the common shares on the NASDAQ National Market
System. The approximate number of holders of common shares is 2,700.

Fiscal	1st Qtr.	2nd Qtr.	3rd Qtr.	4th Qtr.
2006
High	6.40	7.21	7.80	7.64
Low	4.75	5.68	5.86	4.75
2005
High	6.69	10.37	10.35	6.84
Low	4.56	4.70	5.19	5.25

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

Inquiries

A copy of the Company’s 2006 Form 10-K Annual Report filed with the Securities and Exchange Commission is available without charge upon written request, and by visiting www.bioanalytical.com/invest/annual.html. Media inquiries and requests for the 10-K and investor’s kits should be directed to:

     Corporate Communications Director, Corporate Center
     2701 Kent Avenue, West Lafayette, IN 47906 USA

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

BASi Investor Relations, NASDAQ:  BASI
phone 765-463-4527, fax 765-497-1102,
basi@bioanalytical.com, www.bioanalytical.com

Selected Consolidated Financial Data

	Year Ended September 30,
	2006			2005			2004			2003			2002
	(in thousands, except per share data)
Statement of Operations Data:
Service revenue	$	34,318		$	32,951		$	24,928		$	19,987		$	16,140
Product revenue		8,730			9,444			12,224			9,852			10,373
Total revenue		43,048			42,395			37,152			29,839			26,513
Cost of service revenue		25,961			23,589			21,348			15,625			11,556
Cost of product revenue		3,547			3,462			4,270			3,804			4,393
Total cost of revenue		29,238			27,051			25,618			19,429			15,949
Gross profit		13,810			15,344			11,534			10,410			10,564
Operating expenses:
Selling		2,750			2,592			2,703			2,853			2,940
Research and development		1,444			1,326			1,100			1,327			1,521
General and administrative		11,938			10,166			7,505			5,067			4,476
Impairment loss		1,100			—			—			—			—
Total operating expenses		17,232			14,084			11,308			9,247			8,937
Operating income (loss)		(3,422	)		1,260			226			1,163			1,627
Other (expense), net		(1,013	)		(969	)		(833	)		(592	)		(80	)
Income (loss) before income taxes		(4,435	)		291			(607	)		571			1,547
Income tax provision (benefit)		(1,825	)		392			(404	)		484			481
Net income (loss)	$	(2,610	)	$	(101	)	$	(203	)	$	87		$	1,066
Net income (loss) per share
Basic	$	(0.53	)	$	(0.02	)	$	(0.04	)	$	0.02		$	0.23
Diluted	$	(0.53	)	$	(0.02	)	$	(0.04	)	$	0.02		$	0.23
Weighted average common shares outstanding
Basic		4,882			4,870			4,860			4,655			4,576
Diluted		4,882			4,870			4,860			4,673			4,625
	September 30,
	2006			2005			2004			2003			2002
	(in thousands) (unaudited)
Balance Sheet Data:
Working capital (deficit)	$	3,552		$	4,671		$	(495	)	$	(295	)	$	(911	)
Property and equipment, net		25,765			26,565			31,901			31,172			22,824
Goodwill and other intangible assets, net		2,372			3,600			3,936			3,762			884
Total assets		42,314			47,838			46,795			44,985			33,463
Long-term debt, less current portion		8,186			8,579			8,893			6,949			3,247
Subordinated debt, less current portion		4,477			4,829			5,188			5,188			—
Shareholders’ equity		17,354			19,598			19,420			19,726			18,898

The above is selected unaudited consolidated financial data of the Company for the five years ended September 30, 2006. This annual report has been produced in two separate segments. One segment is a reprint of the BASi 10-K for fiscal year 2006 which is enclosed. In the event the 10-K information has been separated, it can be obtained from the SEC or BASI web sites, or we would be pleased to mail or email a copy at your request.

Quarterly Financial Data
Unaudited (amounts in thousands, except for per share data)

For the Quarter Ended in Fiscal 2006
	December 31			March 31			June 30			September 30
Total revenue	$	9,844		$	12,417		$	10,038		$	10,748
Gross profit		3,146			4,934			2,530			3,201
Impairment loss		—			—			1,100			—
Net income (loss)		(716	)		538			(1,756	)		676
Basic net income (loss) per common share outstanding(1)		(0.15	)		0.11			(0.36	)		(0.14	)
Diluted net income (loss) per common share outstanding(1)		(0.15	)		0.11			(0.36	)		(0.14	)
For the Quarter Ended in Fiscal 2005
	December 31			March 31			June 30			September 30
Total revenue	$	9,694		$	9,139		$	11,304		$	12,259
Gross profit		3,627			2,426			5,026			4,265
Net income (loss)		404			(896	)		356			36
Basic net income (loss) per common share outstanding(1)		0.08			(0.18	)		0.07			0.01
Diluted net income (loss) per common share outstanding(1)		0.08			(0.18	)		0.07			0.01

⁽¹⁾  The sum of the net income (loss) per common share may not equal the annual net income (loss) per share due to interim quarter rounding.