10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended September 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	35-1345024
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2701 KENT AVENUE WEST LAFAYETTE, INDIANA	47906 (Zip code)
(Address of principal executive offices)

(765) 463-4527

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Common Shares

Name of exchange on which registered:  NASDAQ Capital Market

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  YES o  NO x

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o  NO x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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,” 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

Based on the closing price on the NASDAQ Global Market on March 31, 2009, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $4,432,000. As of January 12, 2010, 4,915,318 of registrant's common shares were outstanding. None of the registrant's Preferred Shares were outstanding as of January 12, 2010.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement for its 2010 Annual Meeting of Shareholders are incorporated by reference into Part III hereof.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	18
PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	18
Item 6.	Selected Financial Data	19
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 8.	Financial Statements and Supplementary Data	31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56
Item 9A.	Controls and Procedures	56
Item 9B.	Other Information	57
PART III
Item 10.	Directors and Executive Officers of the Registrant	57
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management	59
Item 13.	Certain Relationships and Related Transactions	59
Item 14.	Principal Accounting Fees and Services	59
PART IV
Item 15.	Exhibits and Financial Statement Schedules	60

PART I

This Report contains certain statements that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers of this Report are cautioned that reliance on any forward-looking statement involves risks and uncertainties. Although Bioanalytical Systems, Inc. (the "Company", “we”) believes that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate given the inherent uncertainties as to the occurrence or nonoccurrence of future events. There can be no assurance that the forward-looking statements contained in this Report will prove to be accurate. Risks and uncertainties that may affect our future results include, but are not limited to, those discussed under the heading “Risk Factors,” beginning on page 11.  The inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that the Company's objectives will be achieved. (Dollar amounts in thousands, except per share data, unless noted otherwise.)

ITEM 1 - BUSINESS

General

The Company, a corporation organized in Indiana, provides contract drug development services and research equipment to many leading global pharmaceutical, medical research and biotechnology companies and institutions. We offer an efficient, variable-cost alternative to 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 alternative 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 the research of drugs to treat 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 and large biomolecule drug candidates. We believe our scientists have the skills in analytical instrumentation development, chemistry, computer software development, physiology, medicine, analytical chemistry and toxicology to make the services and products we provide increasingly valuable to our current and potential clients. Our principal clients are scientists engaged in analytical chemistry, drug safety evaluation, clinical trials, drug metabolism studies, pharmacokinetics and basic neuroscience research at many of the largest global pharmaceutical companies.

Changing Nature of the Pharmaceutical Industry

Our services and products are marketed globally to pharmaceutical, medical research and biotech companies and institutions engaged in drug research and development. The research services industry is highly fragmented among many niche vendors led by a small number of larger companies; the latter offer an ever-growing portfolio of start-to-finish pharmaceutical development services. Our products are also marketed to academic and governmental institutions. Our services and products may have distinctly different clients (often separate divisions in a single large pharmaceutical company) and requirements. We believe that all clients are facing increased pressure to outsource facets of their research and development activities and that the following factors will increase client outsourcing:

Accelerated Drug Development

Clients continue to demand faster, more efficient, more selective development of an increasing pool of drug candidates. Consequently, our clients require fast, high-quality service in order to make well-informed decisions to quickly exclude poor candidates and speed development of successful ones. The need for additional development capacity to exploit more opportunities, accelerate development, extend market exclusivity and increase profitability drives the demand for outsourced services.

Cost Containment

Pharmaceutical companies continue to push for more efficient operations through outsourcing to optimize profitability as development costs climb, staff costs increase, generic competition challenges previously secure profit generators, political and social pressures to reduce health care costs escalate, and shareholder expectations mount.

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Patent Expiration

As exclusivity ends with patent expiry, drug companies defend their proprietary positions against generic competition with various patent extension strategies. Both the drug company creating these extensions and the generic competitors should provide additional opportunities for us.

Alliances

Strategic alliances allow pharmaceutical companies to share research know-how and to develop and market new drugs faster in more diverse, global markets. We believe that such alliances will lead to a greater number of potential drugs in testing, many under study by small companies lacking broad technical resources. Those small companies can add shareholder value by further developing new products through outsourcing, reducing risk for potential allies.  Clients seek realistic business partnerships with their service provider in an effort to ensure that costs are controlled as their development programs progress.  We have long-standing business relationships with many pharmaceutical companies and continue to offer flexible services and adapt to our client’s requirements.

Mergers and Acquisitions

Consolidation in the pharmaceutical industry is commonplace. As firms blend personnel, resources and business activities, we believe they will continue to streamline operations and minimize staffing, which may lead to more outsourcing. Consolidation may result in a disruption in the progress of drug development programs as merging companies rationalize their respective drug development pipelines.

Biotechnology Industry and Virtual Drug Company Growth

The biotechnology industry continues to grow and has introduced many new developmental drugs. Many biotechnology drug developers do not have in-house resources to conduct development. Many new companies choose only to carry a product to a developed stage sufficient to attract a partner who will manufacture and market the drug. Efficient use of limited funds motivates smaller firms to seek outside service providers rather than build expensive infrastructure.

Unique Technical Expertise

The increasing complexity of new drugs requires highly specialized, innovative, solution-driven research not available in all client labs. We believe that this need for unique technical expertise will increasingly lead to outsourcing of research activity.

Data Management and Quality Expertise

Our clients and the FDA require more data, greater access to that data, consistent and auditable management of that data, and greater security and control of that data. We have made significant investments in software throughout our contract services groups to optimize efficiency and ensure compliance with FDA regulations and market expectations.

Globalization of the Marketplace

Foreign firms rely on independent development companies with experience in the U.S. to provide integrated services through all phases of product development and to assist in preparing complex regulatory submissions. Domestic drug firms are broadening product availability globally, demanding local regulatory approval. We believe that domestic service providers with global reach, established regulatory expertise, and a broad range of integrated development services will benefit from this trend.

The Company's Role in the Drug Development Process

After a new drug candidate is identified and carried through preliminary screening, the development process for new drugs has three distinct phases.

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1)           The preclinical phaseincludes safety testing to prepare an Investigational New Drug ("IND") exemption for submission to the FDA. The IND must be accepted by the FDA before the drug can be tested in humans. Once a pharmacologically active molecule is fully analyzed to confirm its integrity, the initial dosage form for clinical trials is created. An analytical chemistry method is developed to enable reliable quantification. Stability and purity of the formulation is also determined. 

Clients work with our preclinical services group to establish pharmacokinetics (PK), pharmacodynamics (PD) and safety testing of the new drug. These safety studies range from dose ranging studies, acute safety monitoring of drugs and medical devices to chronic, multi-year oncogenicity and reproductive toxicity studies. Bioanalyses of blood sampled under these protocols by our bioanalytical services group provide pharmacokinetic and metabolism data that is used with the safety and toxicity information to determine the exposure required to demonstrate toxicity.  A no effect level is then established for the drug and sets the basis for future dose levels in further safety testing and clinical phase I studies.  Upon successful completion of preclinical safety studies, an IND submission is prepared and provided to the FDA for review prior to human clinical trials.

Many of our products are designed for use in late discovery and preclinical development. The Culex® family of robotic automated dose delivery and blood sampling systems enable researchers to quickly and cost effectively determine PK/PD profiles of drugs in large and small animal models.  These capabilities allow experiments on freely moving conscious animals from early research for therapeutic target validation to lead optimization of compounds being able to automatically dose and sample in-vivo to develop pharmacokinetic profiles of drugs during early screening in rodents quickly and cost effectively. Our bioanalytical services group utilizes our depth of expertise in liquid chromatography and electrochemistry to develop assays to support research and clinical programs.  Liquid chromatography coupled to mass spectrometry is now a mainstay of our bioanalytical laboratories in support of preclinical projects. We have invested heavily in robotics and mass spectrometry systems in previous years.  Application of this technology allows us to rapidly develop and validate methods for new compounds and obtain information suitable for regulatory submission.

2)           The clinical phasefurther explores the safety and efficacy of the substance in humans. The sponsor conducts Phase I human clinical trials in a limited number of healthy individuals to determine safety and tolerability. Bioanalytical assays determine the availability and metabolism of the active ingredient following administration. Expertise in method development and validation is critical, particularly for new chemical entities.

Exhaustive safety, tolerability and dosing regimens are established in sick humans in Phase II trials. Phase III clinical trials verify efficacy and safety. After successful completion of Phase III trials, the sponsor of the new drug submits a New Drug Application ("NDA") or Product License Application ("PLA") to the FDA requesting that the product be approved for marketing. Early manufacturing demonstrates production of the substance in accordance with FDA Good Manufacturing Practices ("GMP") guidelines. Data are compiled in an NDA, or for biotechnology products a PLA, for submission to the FDA requesting approval to market the drug or product. Our bioanalytical work per study grows rapidly from Phase I through III. The number of samples per patient declines as the number of patients grows in later studies. Phase II and III studies take several years, supported by well-proven, consistently applied analytical methods. It is unusual for a sponsor to change laboratories unless there are problems in the quality or timely delivery of results.

Though we no longer perform Phase I clinical studies following the sale of the Baltimore Clinical Pharmacology Research Unit in fiscal 2008, our services include evaluation of bioequivalence and bioavailability to monitor the rate and extent to which a drug is available in the body and that the availability is consistent between formulations.

3)           Post-approval follows FDA approval of the NDA or PLA. This includes production and continued analytical and clinical monitoring of the drug. The post-approval phase also tracks development and regulatory approval of product modifications and line extensions, including improved dosage forms. The drug manufacturer must comply with quality assurance and quality control requirements throughout production and must continue analytical and stability studies of the drug during commercial production to continue to validate production processes and confirm product shelf life. Samples from each manufactured batch must be tested prior to release of the batch for distribution to the public. 

We also provide services in all areas during the post-approval phase, concentrating on bioequivalence studies of new formulations, line extensions, new disease indications and drug interaction studies.

The increases in our services offerings as a result of both acquisition and internal development have resulted in our ability to provide a broader range of services to our clients, often using combined services of several disciplines to address client needs.

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Our ability to solve client problems by combining our knowledge base, services and products has been a factor in our selection by major pharmaceutical companies to assist in several preclinical through the post-approval phases.

Company Services and Products

Overview

We operate in two business segments – contract research services and research products, both of which address the bioanalytical, preclinical, and clinical research needs of drug developers. Both segments arose out of our expertise in a number of core technologies designed to quantify trace chemicals in complex matrices. We evaluate performance and allocate resources based on these segments.

Services

The contract research services segment provides screening and pharmacological testing, preclinical safety testing, formulation development, regulatory compliance and quality control testing. Revenues from continuing operations from the services segment were $24.2 million for fiscal 2009. The following is a description of the services provided by our contract research services segment:

· Product Characterization, Method Development and Validation: Analytical methods, primarily performed in West Lafayette, Indiana, determine potency, purity, chemical composition, structure and physical properties of a compound. Methods are validated to ensure that data generated are accurate, precise, reproducible and reliable and are used consistently throughout the drug development process and in later product support.

· Bioanalytical Testing: We analyze specimens from preclinical and clinical trials to measure drug and metabolite concentrations in complex biological matrices. Bioanalysis is performed at our facilities in Indiana, Oregon and the United Kingdom (“UK”).

· Stability Testing: We test stability of drug substances and formulated drug products and maintain secure storage facilities in West Lafayette, Indiana to establish and confirm product purity, potency and shelf life. We have multiple International Conference on Harmonization validated controlled-climate GMP (Good Manufacturing Practices) systems in place.

· In Vivo Pharmacology: We provide preclinical in vivo sampling services for the continuous monitoring of chemical changes in life, in particular, how a drug enters, travels through, and is metabolized in living systems. Most services are performed in customized facilities in Evansville, Indiana and West Lafayette, Indiana using our robotic Culex® APS (Automated Pharmacology System) system.

· Preclinical and Pathology Services: We provide pharmacokinetic and safety testing in studies ranging from acute safety monitoring of drugs and medical devices to chronic, multi-year oncogenicity studies in our Evansville, Indiana site. Depending on protocol, multiple tissues may be collected to monitor pathological changes. 

In June 2008, we sold our Phase I / Bioequivalence business located in Baltimore, Maryland, and exited that area of contract research services.  This was a business we acquired in fiscal 2003 with the objective of broadening our service offerings.  However, we never attained sustained profitability with this business.

Research Products

We focus our products business on expediting preclinical screening of developmental drugs. We compete in very small niches of the multibillion dollar analytical instrument industry. The products business targets unique niches in life science research. We design, develop, manufacture and market state-of-the-art:

· In vivo sampling systems and accessories (including disposables, training and systems qualification)

· Physiology monitoring tools

· Liquid chromatography and electrochemistry instruments platforms

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Revenues from continuing operations for our products segment were $7.6 million for fiscal 2009.  We offer three (3) principal product lines:  Analytical Products, In vivo Sampling Products and Vetronics’ Products.  The following is a brief description of the products offered:

· Analytical Products:  The analytical products consist of our liquid chromatographic and electrochemical instruments with associated accessories.  The critical component of these products is the Epsilon® electrochemical platform.  This incorporates all the hardware capabilities needed for most electrochemical experiments but can be modified through software development.  The market is principally academic institutions and industrial research companies.

· In vivo Sampling Products:  The in vivo sampling products consist of the Culex® family of automated in vivo sampling and dosing instruments.  These are used by pharmaceutical researchers to dose animals and collect biological samples (blood, bile, urine, microdialysate, feces or any bio-fluid) from the animals.  Since dosing and sample collections are automated, animals are not manually handled, reducing stress on the animals and producing more representative pharmacological data.  Behavior and other physiological parameters can also be monitored simultaneously.  Compared to manual methods, the Culex® products offer significant reduction in test model use and comparable reduction in labor.  The line also includes miniaturized in vivo sampling devices sold to drug developers and medical research centers to assist in the study of  a number of medical conditions including stroke, depression, Alzheimer’s and Parkinson’s diseases, diabetes and osteoporosis.

· Vetronics’ Products:  The Vetronics’ products consist of instruments and related software to monitor and diagnose cardiac function (electro-cardiogram) and measure other vital physiological parameters primarily in cats and dogs in veterinary clinics.

Clients

Over the past five years, we have regularly provided our services and/or products to most of the top 25 pharmaceutical companies in the world, as ranked by the number of research and development projects.  Approximately 10% of our revenues are generated from customers outside of North America.

We balance our business development effort between large pharmaceutical developers and smaller drug development companies.

Pfizer, Inc. is our largest client, accounting for approximately 7.0% and 7.4% of our total revenues from continuing operations in fiscal 2009 and 2008, respectively. Pfizer, Inc. accounted for 3.2% and 10.0% of total trade accounts receivable from continuing operations at September 30, 2009 and 2008, respectively.

There can be no assurance that our business will not continue to be dependent on continued relationships with Pfizer, Inc. or other clients, or that annual results will not be dependent on a few large projects. In addition, there can be no assurance that significant clients in any one period will continue to be significant clients in other periods. In any given year, there is a possibility that a single pharmaceutical company may account for 5% or more of our total revenue. Since we do not have long-term contracts with our clients, the importance of a single client may vary dramatically from year to year.

Sales and Marketing

Our current sales and marketing efforts target both the top 200 global pharmaceutical companies and smaller companies. We recognize that our growth and customer satisfaction depend upon our ability to continually improve client relationships.

Our products and services are sold directly to the client. We currently have 18 employees on our sales and marketing staff.  Sales, marketing and technical supports are based in the corporate headquarters located in West Lafayette, Indiana.

We have a network of 12 established distributors covering Japan, the Pacific Basin, South America, the Middle East, India, South Africa and Eastern Europe. All of our distributor relationships are managed from the corporate headquarters in West Lafayette, Indiana.

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Contractual Arrangements

Our service contracts typically establish an estimated fee to be paid for identified services. In most cases, some percentage of the contract costs is paid in advance. While we are performing a contract, clients often adjust the scope of services to be provided based on interim project results. Fees are adjusted accordingly. Generally, our fee-for-service contracts are terminable by the client upon written notice of 30 days or less for a variety of reasons, including the client's decision to forego a particular study, the failure of product prototypes to satisfy safety requirements, and unexpected or undesired results of product testing. Cancellation or delay of ongoing contracts may result in fluctuations in our quarterly and annual results. We are generally able to recover at least our invested costs when contracts are terminated.

Our products business offers annual service agreements on most product lines.

Backlog

The contracts pursuant to which we provide our services are terminable upon written notice of 30 days or less.  We maintain projections based on bids and contracts to optimize asset utilization. We have increased the use of sales forecasts in manufacturing our products, with the result that we rarely have a significant backlog for Products. For Services, backlog generally includes work to be performed under signed agreements (i.e., contracts and letters of intent). Once work under a signed agreement begins, net revenues are recognized over the life of the project.  Some of our studies and projects are performed over an extended period of time, which may exceed several years. We maintain an order backlog to track anticipated net revenues yet to be earned for work that has not been performed.

                Although backlog can provide meaningful information to our management with respect to a particular study, we believe that our backlog as of any date is not necessarily a meaningful indicator of our future results for a variety of reasons. These reasons include the following: studies vary in duration; the scope of studies may change, which may either increase or decrease their value; and studies may be terminated, or delayed at any time by the client or regulatory authorities.

Competition

Services

We compete with in-house research, development, quality control and other support service departments of pharmaceutical and biotechnology companies. There are also full-service Contract Research Organizations ("CROs") that compete in this industry. Several of our competitors have significantly greater financial resources. The largest CRO competitors offering similar research services include:

· Covance, Inc.;

· Pharmaceutical Product Development, Inc.;

· Charles River Laboratories, Inc.;

· Parexel; and

· MDS Health Group Ltd.

CROs generally compete on:

· regulatory compliance record;

· quality system;

· previous experience;

· medical and scientific expertise in specific therapeutic areas;

· scientist-to-scientist relationships;

· quality of contract research;

· financial viability;

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· database management;

· statistical and regulatory services;

· ability to recruit investigators;

· ability to integrate information technology with systems to optimize research efficiency;

· an international presence with strategically located facilities; and

· price.

Products

Founded as a provider of instrumentation and products utilized in life and physical sciences research laboratories, we continue to serve these product niches today.  Though many global analytical instruments competitors exist, we have an extensive, long standing network of customers who are repeat buyers and recommend our products.  In contrast, there are few competitors of our in vivo sampling products.  The primary market is large and small pharmaceutical researchers.  Our differentiators are high quality, flexibility to meet customers’ specific needs and superior technical support and service.  We provide equipment that enables our customers to attain premium scientific laboratory information on a reasonable operating investment.  As customers’ needs constantly change, we continually invest in the refinement of our products and in new product opportunities that meet our operating objectives.

Government Regulation

We are subject to various regulatory requirements designed to ensure the quality and integrity of our data and products. These regulations are promulgated primarily under the Federal Food, Drug and Cosmetic Act, as well as by associated Good Laboratory Practice ("GLP"), Good Manufacturing Practice ("GMP"), and Good Clinical Practice ("GCP") guidelines administered by the FDA. The standards of GLP, GMP, and GCP are required by the FDA and by similar regulatory authorities around the world. These guidelines demand rigorous attention to employee training; detailed documentation; equipment validation; careful tracking of changes and routine auditing of compliance. Noncompliance with these standards could result in disqualification of project data collected by the Company. Material violation of GLP, GMP, or GCP guidelines could result in regulatory sanctions and, in severe cases, could also result in a discontinuance of selected operations.  Since October 2004, we have been audited, on a routine basis, by the FDA and UK’s MHRA fifteen times. The FDA has visited five times in West Lafayette, and twice each at the UK, Oregon, and Evansville locations. MHRA has visited the UK facility four times. Of the eleven FDA audits, five were without findings.  The UK facility was found to be compliant with GLP and GCP. 

We have not experienced any significant problems to date in complying with the regulations of such agencies and do not believe that any existing or proposed regulations will require material capital expenditures or changes in our method of operation.

Analytical Services

Laboratories that provide information included in INDs, NDAs and PLAs must conform to regulatory requirements that are designed to ensure the quality and integrity of the testing process. Most of our contract research services are subject to government standards for laboratory practices that are embodied in guidelines for GLP. The FDA and other regulatory authorities require that test results submitted to such authorities be based on studies conducted in accordance with GLP. These guidelines are set out to help the researcher perform work in compliance with a pre-established plan and standardized procedures. These guidelines include but are not restricted to:

· Resources – organization, personnel, facilities and equipment

· Rules – protocols and written procedures

· Characterization – test items and test systems

· Documentation – raw data, final report and archives

· Quality assurance unit – formalized internal audit function

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We must also maintain reports for each study for specified periods for auditing by the study sponsor and by the FDA or similar regulatory authorities in other parts of the world. Noncompliance with GLP can result in the disqualification of data collection during the preclinical trial.

Preclinical Services

Our animal research facilities are subject to a variety of federal and state laws and regulations, including The Animal Welfare Act and the rules and regulations enforced by the United States Department of Agriculture ("USDA") and the National Institutes of Health ("NIH"). These regulations establish the standards for the humane treatment, care and handling of animals by dealers and research facilities. Our animal research facilities maintain detailed standard operating procedures and the documentation necessary to comply with applicable regulations for the humane treatment of the animals in our custody. Besides being licensed by the USDA as a research facility, we are also accredited by the Association for Assessment and Accreditation of Laboratory Animal Care International ("AAALAC") and have registered assurance with the NIH.

Quality Assurance and Information Technology

To assure compliance with applicable regulations, we have established quality assurance programs at our facilities that audit test data, train personnel and review procedures and regularly inspect facilities. In addition, FDA regulations and guidelines serve as a basis for our SOPs where applicable. On an ongoing basis, we endeavor to standardize SOPs across all relevant operations. In addition, we have both developed and purchased software to ensure compliant documentation, handling and reporting of all laboratory-generated study data. In fiscal 2004, we purchased similar 21 CFR Part 11 compliant software for our preclinical research group.  At the end of fiscal 2009, the majority of our laboratory operations in the US were fully in compliance with 21 CFR Part 11, in our analytical, bioanalytical, toxicology, lab information management, and document management systems. Systems compliant with 21 CFR Part 11 were formally validated and released for use in regulated studies.

Also in fiscal 2004, we initiated an implementation of a new Enterprise Resource Planning ("ERP") system, which was launched at all of our locations in the third quarter of fiscal 2005. The implementation of this system was completed in fiscal 2008. The introduction of this new ERP system is part of our response to the Sarbanes-Oxley Act of 2002 (the "Act"). We determined that it was not practical to comply with the control, documentation and testing requirements of Section 404 of the Act while operating on different, decentralized, obsolete systems at our various locations. As part of the implementation of the new system, documentation has been and will continue to be developed. Testing procedures were initiated in fiscal 2008 at all locations in preparation of management's assessment and report on internal controls over financial reporting required by the Act. We worked diligently to ensure that the ERP system and related procedures were adequately installed and successfully tested by the end of fiscal year 2008.  Management’s assessment and report on internal controls over financial reporting is included in Item 9A.

Controlled, Hazardous, and Environmentally Threatening Substances

Some of our development and testing activities are subject to the Controlled Substances Act administered by the Drug Enforcement Agency ("DEA"), which strictly regulates all narcotic and habit-forming substances. We maintain restricted-access facilities and heightened control procedures for projects involving such substances due to the level of security and other controls required by the DEA. In addition, we are subject to other federal and state regulations concerning such matters as occupational safety and health and protection of the environment.

Our U.S. laboratories are subject to licensing and regulation under federal, state and local laws relating to hazard communication and employee right-to-know regulations, the handling and disposal of medical specimens and hazardous waste, as well as the safety and health of laboratory employees. All of our laboratories are subject to applicable federal and state laws and regulations relating to the storage and disposal of all laboratory specimens, including the regulations of the Environmental Protection Agency, the Department of Transportation, the National Fire Protection Agency and the Resource Conservation and Recovery Act. Although we believe that we are currently in compliance in all material respects with such federal, state and local laws, failure to comply could subject us to denial of the right to conduct business, fines, criminal penalties and other enforcement actions.

The regulations of the U.S. Department of Transportation, the U.S. Public Health Service and the U.S. Postal Service apply to the surface and air transportation of laboratory specimens. Our laboratories also comply with the International Air Transport Association regulations which govern international shipments of laboratory specimens. Furthermore, when materials are sent to a foreign country, the transportation of such materials becomes subject to the laws, rules and regulations of such foreign country.

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Safety

In addition to comprehensive regulation of safety in the workplace, the Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for health care employers whose workers may be exposed to blood-borne pathogens such as HIV and the hepatitis B virus. These regulations, among other things, require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to chemicals, and transmission of blood-borne and airborne pathogens. Furthermore, relevant employees receive initial and periodic training focusing on compliance with applicable hazardous materials regulations and health and safety guidelines.

HIPAA

The Department of Health and Human Services has promulgated final regulations under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") that govern the disclosure of confidential medical information in the United States. We have had a global privacy policy in place since January 2001 and believe that we are in compliance with the current European Union and HIPAA requirements. Nevertheless, we will continue to monitor our compliance with these regulations, and we intend to take appropriate steps to ensure compliance as these and other privacy regulations come into effect.

Product Liability and Insurance

We maintain product liability and professional errors and omissions liability insurance, providing approximately $3.0 million in coverage on a claims-made basis. Additionally, in certain circumstances, we seek to manage our liability risk through contractual provisions with clients requiring us to be indemnified by the client or covered by clients' product liability insurance policies. Also, in certain types of engagements, we seek to limit our contractual liability to clients to the amount of fees received. The contractual arrangements are subject to negotiation with clients, and the terms and scope of such indemnification, liability limitation and insurance coverage vary by client and project.

Research and Development

In fiscal 2009 and 2008, we spent $762 and $781, respectively, on research and development. Separate from our contract research services business, we maintain applications research and development to enhance our products business.

Expenditures cover hardware and software engineering costs, laboratory supplies, animals, drugs and reagents, labor, prototype development and laboratory demonstrations of new products and applications for those products.

Intellectual Property

We believe that our patents, trademarks, copyrights and other proprietary rights are important to our business and, accordingly, we actively seek protection for those rights both in the United States and abroad. Where we deem it to be an appropriate course of action, we will vigorously prosecute patent infringements. We do not believe, however, that the loss of any one of our patents, trademarks, copyrights or other proprietary rights would be material to our consolidated revenues or earnings.

We currently hold nine federally registered trademarks, as well as one copyright registration for software. We also maintain a small pool of issued and pending patents. Most of these patents are related to our Culex® or in vivo product line. Of these patents, most are either issued or pending in the United States, although there are also patents issued and pending in the European Union and Japan. Although we believe that at least two of these patents are important to the Culex® product line, the success of the Culex® business is not dependent on the intellectual property rights because we also generate client value through continuing client support, hardware and software upgrades, system reliability and accuracy. In addition to these formal intellectual property rights, we rely on trade secrets, unpatented know-how and continuing applications research which we seek to protect through means of reasonable business procedures, such as confidentiality agreements. We believe that the greatest value that we generate for our clients comes from these trade secrets, know-how and applications research.

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In fiscal 2008, the intangible assets amortization expense included an accelerated amount of $143 for the impairment of certain patents, licenses and trademarks.  This impairment reflected a management decision to no longer support these assets as active patents, licenses and trademarks since they had no related revenue-generating products.

Raw Materials

There are no specialized raw materials that are particularly essential to our business.  We have a variety of alternative suppliers for our essential components.

Employees

At September 30, 2009, we had 257 full-time employees and 17 part-time employees. All employees enter into confidentiality agreements intended to protect our proprietary information. We believe that our relations with our employees are good. None of our employees are represented by a labor union. Our performance depends on our ability to attract and retain qualified professional, scientific and technical staff. The level of competition among employers for skilled personnel is high. We believe that our employee benefit plans enhance employee morale, professional commitment and work productivity and provide an incentive for employees to remain with the Company.

Executive Officers of the Registrant

The following table illustrates information concerning the persons who served as our executive officers as of September 30, 2009. Except as indicated in the following paragraphs, the principal occupations of these persons have not changed in the past three years. Officers are elected annually at the annual meeting of the board of directors.

Name	Age	Position
Richard M. Shepperd	69	Director, President and Chief Executive Officer
Michael R. Cox	62	Vice President, Finance; Chief Financial and Administrative Officer;
		Treasurer
Anthony S. Chilton, Ph.D.	53	Chief Operating Officer, Scientific Services
Jon Brewer	48	Vice President, Sales and Marketing
Craig S. Bruntlett, Ph.D.	60	Senior Vice President, Instruments Division
Lina L. Reeves-Kerner	58	Senior Vice President, Human Resources

Richard M. Shepperd was elected President and Chief Executive Officer of the Company in September 2006. Mr. Shepperd served for two years prior to joining the Company with Able Laboratories, Inc., of Cranbury, New Jersey ("Able") as Chief Restructuring Officer and Director of Restructuring. Able was formerly a generic pharmaceutical manufacturing company which filed a voluntary petition for bankruptcy on July 18, 2005 following the loss of FDA approval for its product line. Mr. Shepperd's duties for Able included exercising executive authority over all operational and restructuring activities of Able, which included advising its Board, creditors committee and courts regarding strategies to maintain and realize the most value from the company's assets. Able was not affiliated with the Company. For the two years prior to serving with Able, Mr. Shepperd served as an independent management consultant for various businesses. In that capacity, he advised these businesses on developing strategies to improve their financial health and maximize the assets of those organizations. 

Michael R. Cox has been Vice President, Finance, Chief Financial Officer and Treasurer since April 2004. In October 2007, he assumed the additional duties of Chief Administrative Officer.  He was Vice President, Finance and CFO of Integrity Pharmaceutical Corporation, a private specialty pharmaceutical company, from October 2003 until its acquisition and merger in March 2004. Prior to that he was Senior Vice President, Finance of Intergen Company, a private biotech manufacturing and research products company, from 1997 until its acquisition in 2001, and continued with the acquirer, Serologicals Corporation, on special projects until joining Integrity. Prior to that, Mr. Cox held various executive positions in two environmental services firms and an investment firm. He was a partner in Touche Ross & Co., where he began his career after obtaining a BS in business administration from the University of North Carolina.

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Anthony S. Chilton, Ph.D.  was hired as the Chief Operating Officer, Scientific Services, effective December 1, 2008. Dr. Chilton has over 30 years of experience as a scientist and executive in leading life sciences companies in England, Canada and the United States.  For the past two years, Dr. Chilton was in charge of early development programs at Atherogenics, Inc. of Alpharetta, Ga.  In the two years prior to joining the Company, Dr. Chilton provided consulting and advisory services to various pharmaceutical companies.  Prior to that, he was Vice President of the Biopharmaceutical Development Division of Cardinal Health Inc., which he joined through a predecessor company in 1998 that was acquired by Cardinal in 2002. Previously, Dr. Chilton spent three years with life sciences companies in Canada, prior to which he held positions in his native United Kingdom.  Dr. Chilton received his bachelor’s degree in Chemistry from the University of East Anglia in 1981, and his Ph.D. in Analytical Chemistry from the University of Hertfordshire in 1993.

Jon D. Brewer was hired as the Vice President of Sales and Marketing, effective October 1, 2008.  Mr. Brewer has nearly 25 years of experience as a sales and marketing executive in the pharmaceutical industry. Most recently, from 2006 to 2008, he consulted with companies as an independent consultant to develop and implement new business strategies. Prior to that, from 2000 to 2006, he served as Vice President of Integrity Pharmaceuticals and continued in this role through the merger with Xanodyne, a specialty pharmaceutical company headquartered in Cincinnati, Ohio.He has a strong history of developing and executing product launches and sales strategies resulting in exceptional sales growth. Mr. Brewer resigned from the Company effective January 4, 2010.

Craig S. Bruntlett, Ph.D. has been Senior Vice President of the Instruments Division since September 2005. Prior to that, he was Senior Vice President of International Sales from 1999.  From 1992 to 1999 he was Vice President, Electrochemical Products. From 1980 to 1990, Dr. Bruntlett was Director of New Products Development for the Company. Dr. Bruntlett has a Bachelor of Arts degree in Chemistry and Mathematics from St. Cloud State University in Minnesota and a Ph.D. in Chemistry from Purdue University.

Lina L. Reeves-Kerner has been Vice President, Human Resources since 1995 and is responsible for the administrative support functions of the Company, including shareholder relations, human resources and community relations. From 1980 to 1990, Ms. Reeves-Kerner served as an Administrative Assistant with the Company. Ms. Reeves-Kerner has a Bachelor of Science degree in Business Administration from Indiana Wesleyan University.

Investor Information

We file various reports with, or furnish them to, the Securities and Exchange Commission (the “SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports.  These reports are available free of charge upon written request or by visiting www.BASInc.com/invest.  Other media inquiries and requests for reports or 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@BASInc.com, www.BASInc.com

ITEM 1A - RISK FACTORS

Our business is subject to many risks and uncertainties, which may affect our future financial performance.  If any of the events or circumstances described below occurs, our business and financial performance could be adversely affected, our actual results could differ materially from our expectations and the market value of our stock could decline. The risks and uncertainties discussed below are not the only ones we face.  There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may adversely affect our business and financial performance.

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We have limited ability to raise additional cash.

Substantially all of assets are encumbered as security for our existing indebtedness.  It could be difficult to raise additional debt without additional collateral for security.  There is also a limited market for our common shares, which could make it difficult to issue additional equity.  It could therefore be difficult to raise additional cash if our revolving line of credit and operations are insufficient to generate sufficient cash.

Noncompliance with debt covenants contained in our credit agreements could adversely affect our ability to borrow under our credit agreements and could ultimately render a substantial portion of our outstanding indebtedness immediately due and payable.

Certain of the Company’s credit agreements contain certain affirmative and negative financial covenants which the Company expects will be difficult to comply with based on the Company’s current and expected financial condition and results of operations. A breach of any of these covenants or our inability to comply with any required financial ratios could result in a default under one or more credit agreements, unless we are able to remedy any default within any allotted cure period or obtain the necessary waivers or amendments to the credit agreements. Upon the occurrence of an event of default that is not waived, and subject to any appropriate cure periods, the lenders under the affected credit agreements could elect to exercise any of their available remedies, which may include the right to not lend any additional amounts to us or, in certain instances, to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable. If we are unable to repay the borrowings with respect to such credit facility when due the lenders could be permitted to proceed against their collateral. The election to exercise any such remedy could have a material adverse effect on our business and financial condition.

The global credit crisis and market downturn has had a negative impact on our ability to obtain additional financing. The inability to obtain additional financing could have a significant adverse effect on our operations.

 The global credit crisis destabilized the global economy and adversely impacted consumer confidence and spending. We believe this global credit crisis has also negatively impacted our ability to obtain additional financing. Our inability to obtain additional financing could have a significant adverse effect on our operations.  Uncertainty about current global economic conditions could also continue to increase the volatility of the Company’s stock price.

Although we currently meet the listing requirements for the NASDAQ Capital Market, our common stock could be de-listed from the NASDAQ Capital Market.

The National Association of Securities Dealers, Inc. has certain standards for the continued listing of a security on The NASDAQ Capital Market.  These standards require, among other things, that a listed issuer have either (i) listed securities with a market value of at least $1 million, (ii) minimum stockholders’ equity of $2.5 million in the most recently completed fiscal year or in two of the three most recently completed fiscal years or (iii) net income from continuing operations of $500,000 in the most recently competed fiscal year or in two of the three most recently completed fiscal years.

If we are unsuccessful in maintaining our NASDAQ listing, then we may pursue listing and trading of our common stock on the Over-The-Counter Bulletin Board or another securities exchange or association with different listing standards than NASDAQ. We anticipate the change in listings may result in a reduction in some or all of the following, each of which could have a material adverse effect on our shareholders:

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• the liquidity of our common stock;

• the market price of our common stock;

• our ability to obtain financing for the continuation of our operations;

• the number of institutional and general  investors that will consider investing in our common stock;

• the number of investors in general that will consider investing in our common stock;

• the number of market makers in our common stock;

• the availability of information concerning the trading prices and volume of our common stock; and

• the number of broker-dealers willing to execute trades in shares of our common stock.

Our business is affected by macroeconomic conditions.

Various macroeconomic factors could affect our business and the results of our operations. For instance, slower economic activity, inflation, volatility in foreign currency exchange rates, decreased consumer confidence and other factors could increase our business costs, lower our revenues or affect the ability of our customers to purchase and pay for our products and services. Interest rates and the liquidity of the credit markets could also affect the value of our investments.

A reduction in research and development budgets at pharmaceutical and biotechnology companies may adversely affect our business.

Our customers include researchers at pharmaceutical and biotechnology companies. Our ability to continue to grow and win new business is dependent in large part upon the ability and willingness of the pharmaceutical and biotechnology industries to continue to spend on research and development and to outsource the products and services we provide. Fluctuations in the research and development budgets of these researchers and their organizations could have a significant effect on the demand for our products and services. Research and development budgets fluctuate due to changes in available resources, mergers of pharmaceutical and biotechnology companies, spending priorities and institutional budgetary policies. Our business could be adversely affected by any significant decrease in life sciences research and development expenditures by pharmaceutical and biotechnology companies. Similarly, economic factors and industry trends that affect our clients in these industries also affect our business.

Since the beginning of our fiscal year on October 1, 2008, we have seen evidence that suggests that many customers have reduced their research and development budgets.  We believe that this is in connection with the general economic slowdown.  While this condition continues, our revenues will be negatively impacted.

Our future success depends on our ability to keep pace with rapid technological changes that could make our services and products less competitive or obsolete.

The biotechnology, pharmaceutical and medical device industries generally, and contract research services more specifically, are subject to increasingly rapid technological changes. Our competitors or others might develop technologies, services or products that are more effective or commercially attractive than our current or future technologies, services or products, or that render our technologies, services or products less competitive or obsolete. If competitors introduce superior technologies, services or products and we cannot make enhancements to ours to remain competitive, our competitive position, and in turn our business, revenues and financial condition, would be materially and adversely affected.

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The CRO services industry is highly competitive.

The CRO services industry is highly competitive. We often compete for business not only with other, often larger and better capitalized, CRO companies, but also with internal discovery and development departments within our clients, some of which are large pharmaceutical and biotechnology companies with greater resources than we have. If we do not compete successfully, our business will suffer. The industry is highly fragmented, with numerous smaller specialized companies and a handful of full-service companies with global capabilities much larger than ours. Increased competition might lead to price and other forms of competition that might adversely affect our operating results. As a result of competitive pressures, our industry experienced consolidation in recent years. This trend is likely to produce more competition among the larger companies for both clients and acquisition candidates. In addition, there are few barriers to entry for smaller specialized companies considering entering the industry. Because of their size and focus, these companies might compete effectively against larger companies such as us, which could have a material adverse impact on our business.

The loss of our key personnel could adversely affect our business.

Our success depends to a significant extent upon the efforts of our senior management team and other key personnel. The loss of the services of such personnel could adversely affect our business.  Also, because of the nature of our business, our success is dependent upon our ability to attract, train, manage and retain technologically qualified personnel.  There is substantial competition for qualified personnel, and an inability to recruit or retain qualified personnel may impact our ability to grow our business and compete effectively in our industry.

Certain members of our senior management team (other than Mr. Shepperd and Dr. Chilton) have employment agreements which include a clause for the continuation of the executive’s salary for a period of one or two years following the termination of their employment within one year of a Change of Control (as defined therein) regardless of the reason for termination. A Change of Control under these agreements includes the Company’s receipt of a report on a Schedule 13D by a person who beneficially owns, directly or indirectly, 20% or more of our outstanding Common Shares. On April 6, 2009, Dr. Peter T. Kissinger and Candice Kissinger filed a Schedule 13D with the Securities and Exchange Commission, which disclosed that they are the beneficial owners of more than 20% of our outstanding Common Shares. The terms of the employment agreements combined with the Kissinger’s Schedule 13D filing may make it more difficult to retain these executives. If a significant number of these executives choose to resign prior to April 6, 2010, the Company may be required to make payments to them that may adversely affect our operating results and liquidity.

Any failure by us to comply with existing regulations could harm our reputation and operating results.

Any failure on our part to comply with existing regulations could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. This would harm our reputation, our prospects for future work and our operating results. Furthermore, the issuance of a notice from the FDA based on a finding of a material violation by us of good clinical practice, good laboratory practice or good manufacturing practice requirements could materially and adversely affect our business and financial performance.

Proposed and future legislation or regulations might increase the cost of our business or limit our service or product offerings.

Federal or state authorities might adopt healthcare legislation or regulations that are more burdensome than existing regulations. Changes in regulation could increase our expenses or limit our ability to offer some of our services or products.

Our business uses biological and hazardous materials, which could injure people or violate laws, resulting in liability that could adversely impact our financial condition and business.

Our activities involve the controlled use of potentially harmful biological materials, as well as hazardous materials, chemicals and various radioactive compounds. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our ability to pay. Any contamination or injury could also damage our reputation, which is critical to getting new business. In addition, we are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations is significant and if changes are made to impose additional requirements, these costs could increase and have an adverse impact on our financial condition and results of operations.

The majority of our customers’ contracts can be terminated upon short notice.

Most of our contracts for CRO services are terminable by the client upon 30 to 90 days’ notice. Clients terminate or delay their contracts for a variety of reasons, including but not limited to:

• products being tested fail to satisfy safety requirements;

• products have undesired clinical results;

• the client decides to forego a particular study;

• inability to enroll enough patients in the study;

• inability to recruit enough investigators;

• production problems cause shortages of the drug; and

• actions by regulatory authorities.

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The termination of one or more significant contracts could have a material adverse effect on our business and financial performance.

Our Products business depends on our intellectual property.

Our products business is dependent, in part, on our ability to obtain patents in various jurisdictions on our current and future technologies and products, to defend our patents and protect our trade secrets and to operate without infringing on the proprietary rights of others. There can be no assurance that our patents will not be challenged by third parties or that, if challenged, those patents will be held valid. In addition, there can be no assurance that any technologies or products developed by us will not be challenged by third parties owning patent rights and, if challenged, will be held not to infringe on those patent rights. The expense involved in any patent litigation can be significant. We also rely on unpatented proprietary technology, and there can be no assurance that others will not independently develop or obtain similar products or technologies.

We might incur substantial expense to develop products that are never successfully developed and commercialized.

We have incurred and expect to continue to incur substantial research and development and other expenses in connection with our products business. The potential products to which we devote resources might never be successfully developed or commercialized by us for numerous reasons, including:

• inability to develop products that address our customers’ needs;

• competitive products with superior performance;

• patent conflicts or unenforceable intellectual property rights;

• demand for the particular product; and

• other factors that could make the product uneconomical.

Incurring significant expenses for a potential product that is not successfully developed and/or commercialized could have a material adverse effect on our business, financial condition, prospects and stock price.

Providing CRO services creates a risk of liability.

In certain circumstances, we seek to manage our liability risk through contractual provisions with clients requiring us to be indemnified by the client or covered by the clients’ product liability insurance policies. Although most of our clients are large, well-capitalized companies, the financial performance of these indemnities is not secured. Therefore, we bear the risk that the indemnifying party may not have the financial ability to fulfill its indemnification obligations or the liability would exceed the amount of applicable insurance. Furthermore, we could be held liable for errors and omissions in connection with the services we perform. There can be no assurance that our insurance coverage will be adequate, or that insurance coverage will continue to be available on acceptable terms, or that we can obtain indemnification arrangements or otherwise be able to limit our liability risk.

We may expand our business through acquisitions.

We occasionally review acquisition candidates and, in addition to acquisitions which we have already made, we are continually evaluating new acquisition opportunities.  We have faced substantial problems integrating acquisitions in the past.  Factors which may affect our ability to grow successfully through acquisitions include:

· inability to obtain financing due to our financial condition and recent performance;

· difficulties and expenses in connection with integrating the acquired companies and achieving the expected benefits;

· diversion of management’s attention from current operations;

· the possibility that we may be adversely affected by risk factors facing the acquired companies;

· acquisitions could be dilutive to earnings, or in the event of acquisitions made through the issuance of our common stock to the shareholders of the acquired company, dilutive to the percentage of ownership of our existing stockholders;

· potential losses resulting from undiscovered liabilities of acquired companies not covered by the indemnification we may obtain from the seller; and

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· loss of key employees of the acquired companies.

Changes in government regulation or in practices relating to the pharmaceutical industry could change the need for the services we provide.

Governmental agencies throughout the world, but particularly in the United States, strictly regulate the drug development process. Our business involves helping pharmaceutical and biotechnology companies comply with the regulatory drug approval process. Changes in regulation, such as a relaxation in regulatory requirements or the introduction of simplified drug approval procedures, or an increase in regulatory requirements that we have difficulty satisfying, or that make our services less competitive, could substantially change the demand for our services. Also, if the government increases efforts to contain drug costs and pharmaceutical and biotechnology company profits from new drugs, our customers may spend less, or reduce their growth in spending on research and development.

Privacy regulations could increase our costs or limit our services.

The US Department of Health and Human Services has issued regulations under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). These regulations demand greater patient privacy and confidentiality. Some state governments are considering more stringent regulations. These regulations might require us to increase our investment in security or limit the services we offer. We could be found legally liable if we fail to meet existing or proposed regulation on privacy and security of health information.

We might lose business opportunities as a result of healthcare reform.

Numerous governments have undertaken efforts to control growing healthcare costs through legislation, regulation and voluntary agreements with healthcare providers and drug companies. Healthcare reform could reduce demand for our services and products, and, as a result, our revenue. In the last several years, the U.S. Congress and some U.S. states have reviewed several comprehensive health care reform proposals. The proposals are intended to expand healthcare coverage for the uninsured and reduce the growth of total healthcare expenditures. The U.S. Congress has also considered and may adopt legislation that could have the effect of putting downward pressure on the prices that pharmaceutical and biotechnology companies can charge for prescription drugs. Any such legislation could cause our customers to spend less on research and development. If this were to occur, we would have fewer opportunities for our business, which could reduce our earnings. Similarly, pending or future healthcare reform proposals outside the United States could negatively impact our revenues from our international operations.

Reliance on air transportation.

Our laboratories and certain of our other businesses are heavily reliant on air travel for transport of samples and other material, products and people, and a significant disruption to the air travel system, or our access to it, could have a material adverse effect on our business.

We have experienced periods of losses on our operating activities.

Our overall strategy includes increasing revenue and reducing/controlling operating expenses. We have concentrated our efforts in ongoing, Company-wide efficiency activities intended to increase productivity and reduce costs including personnel reductions, reduction or elimination of non-personnel expenses and realigning and streamlining operations. We cannot assure that our efforts will result in any increased profitability, or if our efforts result in profit, that profits will continue, for any meaningful period of time.

The outsourcing trend in the biotechnology and pharmaceutical industries may decrease, which could adversely affect our operations.

Over the past several years, some areas of our businesses have grown significantly as a result of the increase in pharmaceutical and biotechnology companies outsourcing their preclinical and clinical research support activities. We believe that due to the significant investment in facilities and personnel required to support drug development, pharmaceutical and biotechnology companies look to outsource some or all of those services. By doing so, they can focus their resources on their core competency of drug discovery, while obtaining the outsourced services from a full-service provider like us. While industry analysts expect the outsourcing trend to continue for the next several years, a decrease in preclinical and/or clinical outsourcing activity could result in a diminished growth rate in the sales of one or more of our expected higher-growth areas and adversely affect our financial condition and results of operations. Furthermore, our customer contracts are generally terminable on little or no notice. Termination of a large contract or multiple contracts could adversely affect our sales and profitability.

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Current economic and capital market trends may materially adversely affect our business.

Our revenues depend greatly on the expenditures made by the pharmaceutical and biotechnology industries in research and development.  In some instances, companies in these industries are reliant on their ability to raise capital in order to fund their research and development projects.  Accordingly, current economic factors and industry trends that affect our clients in these industries also affect our business.  If companies in these industries were to reduce the number of research and development projects they conduct or outsource due to their inability to raise capital because of current economic trends, our business could be materially adversely affected.

Moreover, we rely on credit facilities to provide working capital to support our operations.  We regularly evaluate alternative financing sources.  Further changes in the commercial credit market or in the financial stability of our creditors may impact the ability of our creditors to provide additional financing. In addition, the financial condition of our credit facility providers, which is beyond our control, may adversely change. Any decrease in our access to borrowings under our credit facility, tightening of lending standards and other changes to our sources of liquidity could adversely impact our ability to obtain the financing we need to continue operating the business in our current manner.

ITEM 1B- UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2-PROPERTIES

We operate in the following locations, all of which we own, except as otherwise indicated:

•             Our principal executive offices are located at 2701 Kent Avenue, West Lafayette, Indiana 47906, and constitute multiple buildings with approximately 117,000 square feet of operations, manufacturing, and administrative space. Both the services segment and the products segment conduct operations at this facility. The buildings have been financed by mortgages.

•             BAS Evansville Inc., is in Evansville, Indiana. Weoccupy 10 buildings with roughly 92,000 square feet of operating and administrative space on 52 acres. Most of this site is engaged in preclinical toxicology testing of developmental drugs in animal models. A recent addition was financed by a mortgage.

•             Bioanalytical Systems, Ltd. is in Warwickshire, UK.  This facility contains our contract services and instruments operations for laboratories, sales and technical support services in the U.K.  During fiscal 2008, we moved into a newly constructed laboratory space in the same office park as the previous leased space.  Our new space of approximately 7,000 square feet is specifically designed for laboratory use and will allow us to potentially double capacity over the previous space.

•             BASi Northwest Laboratory is in McMinnville, Oregon, approximately 40 miles from Portland. We lease roughly 8,600 square feet of laboratory and administrative space, principally used for bioanalytical services.

We believe that our facilities are adequate for our operations and that suitable additional space will be available if and when needed. The terms of any mortgages and leases for the above properties are detailed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Notes 6 and 7 to the Notes to Consolidated Financial Statements.

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ITEM 3-LEGAL PROCEEDINGS

We currently do not have any material pending legal proceedings.

ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5-MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

As of September 30, 2009, our common stock was traded on the NASDAQ Global Market under the symbol “BASi.”  Effective November 20, 2009, our common stock is traded on NASDAQ Capital Markets.  The following table sets forth the quarterly high and low sales price per share of our common stock from October 1, 2007 through September 30, 2009.

	High		Low
Fiscal Year Ended September 30, 2008
First Quarter	$	9.39	$	6.76
Second Quarter		8.85		5.04
Third Quarter		6.00		4.25
Fourth Quarter		5.70		4.35
Fiscal Year Ended September 30, 2009
First Quarter	$	5.13	$	1.00
Second Quarter		1.82		0.60
Third Quarter		1.81		0.70
Fourth Quarter		1.15		0.60

Holders

There were approximately 2,700 holders of record of our common stock as of January 12, 2010.

Dividends

We have not paid any cash dividends on our common shares and do not anticipate paying cash dividends in the foreseeable future.

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Equity Compensation Plan Information

We maintain a stock option plan that allows for the granting of options to certain key employees and directors. The following table gives information about equity awards under our stock option plans (in thousands except per share amounts):

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options		Weighted Average Exercise Price of Outstanding Options		Number of Securities Remaining Available for Future Issuance under the Equity Compensation Plan (Excluding Securities Reflected in First Column)
Equity compensation plans approved by security holders		595	$	6.03		336
Equity compensation plans not approved by security holders (1)		25	$	4.58		—
Total		620	$	5.97		336

(1) Includes option to purchase 25 shares at $4.58 granted to Michael R. Cox on April 1, 2004.

For additional information regarding our stock option plans approved by security holders, please see Note 9 to the Notes to Consolidated Financial Statements included in Item 8 of this report.

ITEM 6 – SELECTED FINANCIAL DATA

Not applicable.

[Remainder of page intentionally left blank.]

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ITEM 7-MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains statements that constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements appear in a number of places in this Report and may include statements regarding our intent, belief or current expectations with respect to, but are not limited to (i) our strategic plans; (ii) trends in the demand for our products and services; (iii) trends in the industries that consume our products and services; (iv) our ability to refinance our debt; (v) our ability to develop new products and services; (vi) our ability to make capital expenditures and finance operations; (vii) global economic conditions, especially as they impact our markets; (viii) our cash position; and (ix) our ability to integrate a new marketing team. Readers are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward looking statements as a result of various factors, many of which are beyond the control of the company.

In addition, we have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based upon those assumptions also could be incorrect. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto included or incorporated by reference elsewhere in this Report. In addition to the historical information contained herein, the discussions in this Report may contain forward-looking statements that may be affected by risks and uncertainties, including those discussed in Item 1A, Risk Factors. Our actual results could differ materially from those discussed in the forward-looking statements.

The following amounts are in thousands unless otherwise indicated.

Business Overview

The business of Bioanalytical Systems, Inc. is largely dependent on the level of pharmaceutical and biotechnology companies' efforts in new drug discovery and approval. Our services segment is the direct beneficiary of these efforts, through outsourcing by these companies of research work. Our products segment is the indirect beneficiary, as increased drug development leads to capital expansion providing opportunities to sell the equipment we produce and the consumable supplies we provide that support our products.

Developments within the industries we serve have a direct, and sometimes material, impact on our operations. Currently, many large pharmaceutical companies have major "block-buster" drugs that are nearing the end of their patent protections. This puts significant pressure on these companies both to develop new drugs with large market appeal, and to re-evaluate their cost structures and the time-to-market of their products. Contract research organizations ("CRO's") have benefited from these developments, as the pharmaceutical industry has turned to out-sourcing to both reduce fixed costs and to increase the speed of research and data development necessary for new drug applications.

The number of significant drugs that have reached or are nearing the end of their patent protection has also benefited the generic drug industry. That sector of the drug industry has seen significant growth in the past decade, and, we believe, will continue to experience strong growth in the foreseeable future. Generic drug companies provide a significant source of new business for CRO's as they develop, test and manufacture their generic compounds.

A significant portion of innovation in the pharmaceutical industry is now being driven by biotech and small, venture capital funded, drug development companies. Many of these companies are "single-molecule" entities, whose success depends on one innovative compound. While several of the biotech companies have reached the status of major pharmaceuticals, the industry is still characterized by smaller entities. These developmental companies generally do not have the resources to perform much of the research within their organizations, and are therefore dependent on the CRO industry for both their research and for guidance in preparing their FDA submissions. These companies have provided significant new opportunities for the CRO industry, including us. They do, however, provide challenges in selling, as they frequently have only one product in development, which causes CRO's to be unable to develop a flow of projects from a single company. These companies may expend all their available funds and cease operations prior to fully developing a product. Additionally, the funding of these companies is subject to investment market fluctuations, which changes with changes to the risk profile and appetite of investors.

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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 market demands. We are also impacted by the heightened regulatory environment and the need to improve our business infrastructure to support our increasingly diverse operations, which will necessitate additional capital investment. Our ability to generate capital to reinvest in our capabilities, both through operations and financial transactions, is critical to our success. While we are currently committed to fully utilizing recent additions to capacity, sustained growth will require additional investment in future periods.  Our financial position could limit our ability to make such investments.

In contrast to fiscal 2008, there were several announcements of large mergers in the pharmaceutical industry in fiscal 2009. 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 reduced the demand and increased competition for CRO services in fiscal 2009 and was a distraction for the research and development arms of these companies as they await finalization of new drug development portfolios.  The additional competitive pressures could adversely affect our future operating results.

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 resulted in a significant negative impact on our revenues for 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 and continued through the end of the current fiscal year.

Executive Overview

Our revenues are dependent on a relatively small number of industries and clients. As a result, we closely monitor the market for our services. In fiscal 2009, we experienced lower demand for our products and services, high cancellation rates and significant project delays. We believe this was primarily due to the current general economic conditions and the global financial crisis, increased competition, and consolidation of several large pharmaceutical and biotechnology companies, which delayed decisions on research and development spending. Despite these conditions and uncertainties about the level of and delays in R&D spending by pharmaceutical and biotechnology companies, we continue to believe in the fundamentals of the market and that it will rebound in future periods. For fiscal 2010, we plan to focus on sales execution, operational performance and building strategic partnerships with pharmaceutical and biotechnology companies.

We review various metrics to evaluate our financial performance, including period-to-period changes in new orders, revenue, margins and earnings. In fiscal 2009, we had new authorizations of $33.6 million, a decrease of 26.2% over the same period in 2008. Likewise in fiscal 2009, our overall revenues declined approximately 24% versus the prior fiscal year.  Gross margin and earnings declined as well from prior year.  For a detailed discussion of our revenue, margins, earnings and other financial results for the fiscal year ended September 30, 2009, see “Results of Operations – 2009 Compared to 2008” below.

As of September 30, 2009, we had $870 of cash and cash equivalents as compared to $335 of cash and cash equivalents at the end of fiscal 2008. In fiscal 2009, we generated $1,999 in cash from continuing operations.  Our accounts receivable and unbilled revenues balances decreased $3,680 from the prior fiscal year primarily due to the decline in sales, offset slightly by efforts to collect outstanding receivables. We plan to continue to monitor accounts receivable and the various factors that affect it, including contract terms, the mix of contracts performed and our success in collecting receivables. We will also continue to limit unnecessary spending, and freeze current wage rates for the foreseeable future to control costs and maintain cash.

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Results of Operations

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

	Year Ended September 30,
	2009			2008
Service revenue		76.0	%		79.0	%
Product revenue		24.0			21.0
Total revenue		100.0	%		100.0	%
Cost of service revenue (a)		86.8			69.7
Cost of product revenue (a)		42.2			39.0
Total cost of revenue		76.1			63.2
Gross profit		23.9			36.8
Total operating expenses		38.4			30.1
Operating income (loss)		(14.5	)		6.7
Other expense		(3.3	)		(2.3	)
Income (loss) from continuing operations before income taxes		(17.8	)		4.4
Income tax (benefit) expense		(0.6	)		3.2
Net income (loss) from continuing operations		(17.2	)%		1.2	%

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

2009 Compared to 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 year ended September 30, 2009 declined 23.8% to $31,784 compared to $41,697 for the year ended September 30, 2008.

Our Services revenue declined 26.6% to $24,158 compared to $32,921 for the prior year primarily as a result of lower bioanalytical analysis and toxicology revenues.  Our bioanalytical analysis revenues decreased $4,255 (a 23.5% decline from 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 $2,647. Likewise, our toxicology revenues declined from our prior fiscal year by $3,450, or 30.1%.  Study delays and cancellations contributed to the decline for the toxicology group as well.

Sales in our Products segment decreased 13.1% from $8,776 to $7,626 when compared to the same period in the prior year.  The majority of that decrease stems from lower sales of our Culex automated in vivo sampling systems, which declined 30.3% to $3,263 from $4,680.  This decline stems mainly from the reduction in research and development and capital spending by our customers as part of their overall cost savings initiatives.

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Although our revenues for the current fiscal year were less than our prior fiscal year, our revenues increased 10% in the second half of the current fiscal year from the first half.  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 Revenue

Cost of revenue for the year ended September 30, 2009 was $24,180 or 76.1% of revenue compared to $26,364, or 63.2% of revenue for the comparable prior period.

Cost of Service revenue as a percentage of Service revenue increased to 86.8% in the current fiscal year from 69.7% in the prior 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 fiscal year increased from 39.0% to 42.2%.  The increase in the percentage was mainly due to an increase in our periodic charges for inventory obsolescence of $295.  This was the result of higher charges in the current fiscal year for products that were discontinued.

Operating Expenses

Selling expenses for the year ended September 30, 2009 decreased by 15.8% to $3,296 from $3,912 for the year ended September 30, 2008.   This decrease was primarily driven by a decrease in salary expense resulting from the reduction in work force and other departures, lower commissions due to the decline in sales and reduced spending on marketing expenditures. Also, accelerated amortization of $143 in fiscal 2008, related to the abandonment of unused patents, resulted in lower amortization expense in fiscal 2009.

Research and development expenses for the year ended September 30, 2009 decreased 2.4% to $762 from $781 for the year ended September 30, 2008. The decrease was partially due to a decrease in salaries from the reduction in work force as well as reduced spending on temporary labor and operating supplies.

General and administrative expenses for the current year decreased 2.2% to $7,674 from $7,846 for the prior year. A decline in salaries and hourly wages from the January 2009 reduction in force contributed to the reduction in expenses in the current fiscal year as well as strict controls on other variable expenses.

Other Income/Expense

Other income (expense), net, was $(1,060) for the year ended September 30, 2009 as compared to $(971) for the year ended September 30, 2008. This increase is due to additional borrowings on our line of credit, causing higher interest expense and lower interest income year over year.

Income Taxes

Our effective tax rate for continuing operations for the year ended September 30, 2009 was (3.5%) compared to 72.8% for the prior year period.  In fiscal 2009, a valuation allowance was set up against the entire US deferred income tax balance, adjusting the rate from (36.4%) to (3.5%).  In fiscal 2008, we recorded an additional expense of $233 for uncertain tax positions and incurred taxes on domestic income from which we could not deduct the loss from our UK facility.  We also did not provide income taxes on foreign earnings in fiscal 2008 or 2009 due to the availability of net operating loss carry forwards to offset our taxable income, which have not previously been recognized for financial statement purposes due to the uncertainty of future utilization.

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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.   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.  For further detail, see Note 5 to the consolidated financial statements included in this report.

Accordingly, in the consolidated statements of operations and cash flows, we segregated the results of the CPRU as discontinued operations for our 2008 fiscal year.  The loss from discontinued operations reflects the results of operations of the CPRU until disposal in fiscal 2008. The remaining estimated cash expenditures related to this unit were recorded as current liabilities of discontinued operations, since they were paid within fiscal year 2009.  These expenditures relate mostly to normal operating expenses.  The current assets of discontinued operations relate mostly to outstanding customer receivables for completed clinical trials that were collected in fiscal 2009.

Liquidity and Capital Resources

Comparative Cash Flow Analysis

Since inception, our principal sources of cash have been cash flow generated from operations and funds received from bank borrowings and other financings. At September 30, 2009, we had cash and cash equivalents of $870 compared to $335 at September 30, 2008.

Net cash provided by continuing operating activities was $1,999 for the year ended September 30, 2009, compared to $3,959 for the year ended September 30, 2008. The decrease in cash provided by continuing operating activities in the current fiscal year primarily results from a decrease in earnings from continuing operations as well as a decrease in customer advances of $1,169.  These items were partially offset by a decrease in accounts receivable of $3,680 as a result of the decline in sales and a decrease in refundable income taxes of $739 due to the receipt of federal and state income tax refunds.  Included in operating activities for fiscal 2009 are non-cash charges of $2,645 for depreciation and amortization, $103 recorded to reflect the fair value of our interest rate swaps, $472 for impairment of goodwill for our UK operations and $570 for employee stock option expense.  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 fiscal 2009 as compared to operating income in the prior year as a result of an approximate 24% year-to-date decrease in sales, significantly reducing 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 as our revenues began to increase.  Total revenues in the fourth quarter of fiscal 2009 of $8,521 represent the highest revenues of any quarter in fiscal 2009. Likewise, revenues in the second half of fiscal 2009 increased approximately $1,500 or 10% over the first half of the current fiscal year.  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 did not continue into the second half of fiscal 2009.  Compared to the first half of fiscal 2009, selling and general and administrative costs decreased $1,580, or 25%, in the second half of the current fiscal year. We expect the reduced spending levels to continue and that our efforts to reduce costs will positively impact fiscal 2010 as well.

With respect to compliance with our bank loan covenants, EBITDA is computed as earnings before interest, taxes, depreciation and amortization, removing other non-cash charges such as stock option expenses and the impairment loss and deducting unfunded capital expenditures.  For the third quarter ended June 30, 2009, we generated positive EBITDA for the first time in fiscal 2009.  This continued into the fourth quarter of fiscal 2009 with another positive EBITDA quarter.  We also covered our fixed charge coverage ratio for interest, debt and lease amortization for the second half of fiscal 2009, after a period of three fiscal quarters in which we did not.  We believe these improvements helped to enable us to obtain waivers from our banks for loan covenant violations and to amend the covenants for future periods as discussed below.

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In January 2009, we completed a reduction in work force impacting all areas of operations, through both attrition and terminations, which reduced our annual compensation expense by approximately 12%.  Also, in an effort to reduce operating costs and provide greater financial flexibility, we negotiated a 43% reduction in the base salary of Richard M. Shepperd, our CEO.

Investing activities used $834 in fiscal 2009 mainly 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.  The 51.3% reduction in capital spending from fiscal 2008 is a result of our efforts to contain cash commitments throughout the organization, funding only necessary expenditures.

Financing activities used $1,476 in the current fiscal year as compared to $2,071 used for fiscal 2008. The main use of cash in fiscal 2009 was for long term debt and capital lease payments of $1,212, as well as net payments on our line of credit of $264.  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 $2,023 and long term debt and capital lease payments of $1,029.

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, which should result in improved future liquidity.   During fiscal 2009, cash provided by operating activities for discontinued operations of $588 is mainly due to the collection of outstanding receivables.

Capital Resources

Property and equipment spending totaled $0.8 million and $3.2 million in fiscal 2009 and 2008, respectively. The decrease in spending in fiscal 2009 is the result of cash savings initiatives, funding only necessary expenditures. Capital spending in fiscal 2008 was mainly for tenant improvements on our new lease in the UK facility as well as laboratory equipment financed mainly through capital leases in the West Lafayette and Evansville, Indiana facilities. Capital investments for the purchase of additional laboratory equipment are driven by anticipated increases in research services, and by the replacement or upgrading of our equipment. Although we may consider strategic acquisition opportunities, we do not intend to aggressively pursue additional acquisitions until we fully utilize existing capacity.

We have notes payable to Regions aggregating approximately $8,700 and a $3,000 line of credit with Entrepreneur Growth Capital LLC (EGC), which is subject to availability limitations that may substantially reduce or eliminate our borrowing capacity at any time, as described in Note 7 to our consolidated financial statements. Regions notes payable include three outstanding mortgages on our facilities in West Lafayette and Evansville, Indiana, which total $7,503.  Two of the mortgages mature in November 2012 with an interest rate fixed at 7.1%, while the other matures in February 2011 with an interest rate of 6.1%.  In addition to the mortgages, we also have a note payable with Regions totaling $1,212, maturing December 18, 2010.  Interest on this term loan is equal to 6.1%. Monthly payments are $9 plus interest. The loan is collateralized by real estate at our West Lafayette and Evansville, Indiana locations. See Note 7 to the Consolidated Financial Statements for additional information.

We have interest rate swap agreements with respect to the note payable and a mortgage loan to fix the interest rate at 6.1%.  We entered into the derivative transactions to hedge interest rate risk of this debt obligation and not to speculate on interest rates.  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 $103 at September 30, 2009 and $0 at September 30, 2008, which was recorded in our consolidated financial statements as interest expense and a long term liability.  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 consolidated financial statements is expected to be zero.

Borrowings under our 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 comply with certain financial covenants outlined in the borrowing agreements. All of these credit agreements contain cross-default provisions.

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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 contain both cross-default provisions with each other and with the revolving line of credit from EGC as 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 waived 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 amended 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 are less restrictive to us.  At September 30, 2009, we were in compliance with the amended fixed charge covenant ratio.  Based on projections for fiscal 2010, we expect to be in breach of the Regions covenants once the computations and requirements revert to the original agreement after December 31, 2009.  On January 7, 2010, Regions waived our expected violation of the fixed charge coverage ratio covenant through December 31, 2009.  On January 13, 2010, Regions amended the computations and requirements for the fixed charge coverage ratios through fiscal year 2010.

Revolving Line of Credit

On January 13, 2010, we entered into a new $3,000 revolving line of credit agreement (“Credit Agreement”), with Entrepreneur Growth Capital LLC (EGC), which we intend to use for working capital and other purposes, to replace the National City line of credit that expires on January 15, 2010. Borrowings under the Credit Agreement are secured by a blanket lien on our personal property, including certain eligible accounts receivable, inventory and intellectual property assets, and a second mortgage on our West Lafayette and Evansville real estate. Under the Credit 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 Credit Agreement. The initial term of the Credit Agreement terminates January 31, 2011 but is renewable upon mutual agreement of the parties. If we prepay prior to the expiration of the initial term (or any renewal term), then we are subject to an early termination fee equal to the minimum interest charges for the number of months remaining until expiration.

The covenants in the Credit Agreement require that we maintain a minimum tangible net worth of $9,500, which may restrict the amount we can borrow to fund future operations, acquisitions and capital expenditures.  The Credit Agreement also contains cross-default provisions with the Regions loans and any future EGC loans.

Under the Credit Agreement borrowings bear interest at an annual rate equal to Citibank’s Prime Rate plus five percent (5%) with minimum interest of $15 per month.  Interest is paid monthly.  The line of credit also carries an annual facilities fee of 2% and a 0.2% collateral monitoring fee.

         Based on our current business activities and cash on hand, we expect to borrow on our revolving credit facility in fiscal 2010 to finance working capital.  To conserve cash, we instituted a freeze on non-essential capital expenditures.  As of September 30, 2009, we had $3,000 of total borrowing capacity with the National City line of credit, of which $1,759 was outstanding, and $870 of cash on hand.

We had a decrease in our total borrowing capacity of $1,448, from $4,448 to $3,000, from the fiscal year ended September 30, 2008 due to several factors, including the reduction of our maximum available amount from $5,000 to $3,000.  Declining sales in 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 the second half of fiscal year 2009 increased 10% over the first fiscal half and our accounts receivable balance increased slightly as well.  Although the second half revenue and cash flow have shown gains over the first half of fiscal 2009, failure to continue to improve revenue and control expenses could impair our ability to continue operations.

With the decrease in cash flow from operations discussed above, we may face additional situations during fiscal 2010 where we are not in compliance with at least one covenant in the Credit Agreement, requiring that we obtain a waiver at that time.  If that situation arises, we will be required to negotiate 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.

The following table summarizes the cash payments under our contractual term debt and other obligations at September 30, 2009 and the effect such obligations are expected to have on our liquidity and cash flows in future fiscal periods (amounts in thousands). The table does not include our revolving line of credit.  Additional information on the debt is described in Note 7, Debt Arrangements.

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	2010		2011		2012		2013		2014		After 2014		Total
Notes payable	$	524	$	2,727	$	306	$	5,158	$	—	$	—	$	8,715
Capital lease obligations		826		479		342		159		—		—		1,806
Operating leases		434		424		421		405		402		2,918		5,004
Uncertain tax positions		473		—		—		—		—		—		473
	$	2,257	$	3,630	$	1,069	$	5,722	$	402	$	2,918	$	15,998

We anticipate spending approximately $1.0 million in fiscal 2010 on capital assets, primarily laboratory equipment which will be financed using capital leases.

Inflation

We do not believe that inflation has had a material adverse effect on our business, operations or financial condition.

Critical Accounting Policies

"Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Liquidity and Capital Resources" discusses the 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 by the amount by which the carrying amount of the asset exceeds the fair value of the asset.  During 2008, we recorded an impairment charge of $143 related to certain patents, licenses and trademarks that have no revenue generating products.

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Goodwill is tested annually for impairment, and more frequently if events and circumstances indicate that the asset might be impaired, using a two-step process.  In the first step, we compare the fair value of each reporting unit, as computed primarily by present value cash flow calculations, to its book carrying value, including goodwill. We do not believe that market value is indicative of the true fair value of the Company mainly due to average daily trading volumes of less than 1%.  If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and we would then complete step 2 in order to measure the impairment loss. In step 2, the implied fair value is compared to the carrying amount of the goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, we would recognize an impairment loss equal to the difference. The implied fair value is calculated by allocating the fair value of the reporting unit (as determined in step 1) to all of its assets and liabilities (including unrecognized intangible assets) and any excess in fair value that is not assigned to the assets and liabilities is the implied fair value of goodwill.

The discount rate and sales growth rates are the two material assumptions utilized in our calculations of the present value cash flows used to estimate the fair value of the reporting units when performing the annual goodwill impairment test. Our three reporting units are West Lafayette/Oregon, Evansville and the UK based on the discrete financial information available which is reviewed by management.  We utilize a cash flow approach in estimating the fair value of the reporting units, where the discount rate reflects a weighted average cost of capital rate. The cash flow model used to derive fair value is most sensitive to the discount rate and sales growth assumptions used. Due to fiscal year 2009 operating losses and lowered expectations for the near future, we performed an impairment test for our UK reporting unit as of June 30, 2009 using the assumptions detailed in the table below.  As a result of this test, we recorded a $472 impairment loss equal to the total value of the UK goodwill.  We performed our annual impairment test for all other reporting units at September 30, 2009.  Using the following assumptions, which are more conservative than our internal forecasts and operating plans, the fair value of our West Lafayette/Oregon reporting unit is greater than the carrying value by approximately $1,600:

	Reporting Unit
	West Lafayette/Oregon	UK
Discount rate	22.0%	20.0%
Revenue growth rate in fiscal 2010	1.5%	27.0%
Revenue growth rate each year after fiscal 2010	3.0%	18.0%
Operating expense reduction in fiscal 2010	18.1%	17.0%
Operating expense increase each year after fiscal 2010	1.0%	9.0%

Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted sales growth rates and our cost of capital or discount rate, are based on the best available market information and are consistent with our internal forecasts and operating plans. Changes in these estimates or a continued decline in general economic conditions could change our conclusion regarding an impairment of goodwill and potentially result in a non-cash impairment loss in a future period.  The assumptions used in our impairment testing could be adversely affected by certain of the risks discussed in “Risk Factors” in Item 1A of this report.  There have been no significant events since the timing of our impairment tests that have triggered additional impairment testing.

At September 30, 2009, remaining recorded goodwill was $1,383, and the net balance of other intangible assets was $114.

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 $570 and $592 during the fiscal years ended September 30, 2009 and 2008, respectively.

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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 may be 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 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 recognized in future periods.

Income Tax Accounting

As described in Note 8 to the consolidated financial statements, we use the asset and liability method of accounting for income taxes.

We maintain a reserve for uncertain tax positions, according to ASC 740, Income Taxes. Under ASC 740, 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.

At the end of fiscal 2008 a $473 liability for uncertain income tax positions existed under ASC 740. This reserve is classified as a current liability in the consolidated balance sheet based on when we expect each of the items to be settled. Interest and penalties are included in this reserve. See Note 8 for additional information.

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.

We have an accumulated net deficit in our UK subsidiaries, consequently, United States deferred tax assets on such earnings have not been recorded. Also, a valuation allowance was established in fiscal 2009 against the US deferred income tax balance. We had previously recorded a valuation allowance on the UK subsidiary deferred income tax balance.

Inventories

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

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New Accounting Pronouncements

In August 2008, the SEC announced that it will issue for comment a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with IFRS (International Financial Reporting Standards). IFRS is a comprehensive series of accounting standards published by the IASB (International Accounting Standards Board). Under the proposed roadmap, we could be required to prepare financial statements in accordance with IFRS beginning in fiscal 2014. The SEC has indicated it will make a determination in 2011 regarding mandatory adoption of IFRS.

In April 2009, the FASB issued an accounting pronouncement under ASC 825-10-50 extending the disclosure requirements regarding the fair value of financial instruments.  ASC 825-10-50 requires disclosures in interim reporting periods and in financial statements for annual reporting periods regarding the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not on the company's balance sheet.  ASC 825-10-50 requires entities to disclose the methods and significant assumptions used to estimate the fair value of financial instruments and describe changes in methods and significant assumptions, in both interim and annual financial statements.  ASC 825-10-50 is effective for interim reporting periods ending after June 15, 2009 (the quarter ended June 30, 2009 for the Company).  The adoption of ASC 825-10-50 has resulted in increased disclosures in our consolidated financial statements.

In May 2009, the FASB issued a new accounting standard on the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued (“subsequent events”). The standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that occur for a potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This standard is effective for interim and annual periods ending after June 15, 2009. The adoption of this standard did not have a material impact on our consolidated financial statements. We have evaluated subsequent events through January 13, 2010, the date of issuance of our consolidated financial statements.

In June 2009, the FASB issued a new standard on the FASB Accounting Standards Codification, or ASC. This standard was issued to establish the FASB ASC as the source of authoritative accounting principles recognized by the FASB in the preparation of financial statements in conformity with generally accepted accounting principles, or GAAP. Essentially, the GAAP hierarchy will be modified to only include 2 levels – authoritative and non-authoritative. This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the FASB ASC has resulted in increased disclosures in our consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, which amends ASC Topic 605, Revenue Recognition.  ASU 2009-13 revises the current accounting treatment to specifically address how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting.  This guidance is applicable to revenue arrangements entered into or materially modified during our first fiscal year that begins after June 15, 2010.  The guidance may be applied either prospectively from the beginning of the fiscal year for new or materially modified arrangements or retrospectively.  We are currently evaluating this authoritative guidance to determine any potential impact that it may have on our consolidated financial statements.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 8-FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

		Page
Consolidated Financial Statements of Bioanalytical Systems, Inc.
	Consolidated Balance Sheets as of September 30, 2009 and 2008	32
	Consolidated Statements of Operations for the Years Ended September 30, 2009 and 2008	33
	Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the Years Ended September 30, 2009 and 2008	34
	Consolidated Statements of Cash Flows for the Years Ended September 30, 2009 and 2008	35
	Notes to Consolidated Financial Statements	36
	Report of Independent Registered Public Accounting Firm	55
Financial Statement Schedules:
Schedules are not required, are not applicable or the information is shown in the Notes to the Consolidated Financial Statements.

31

 BIOANALYTICAL SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	As of September 30,
	2009			2008
Assets
Current assets:
Cash and cash equivalents	$	870		$	335
Accounts receivable
Trade		3,996			6,705
Unbilled revenues and other		1,684			2,653
Inventories		1,847			2,184
Deferred income taxes		—			516
Refundable income taxes		544			1,283
Prepaid expenses		622			639
Current assets of discontinued operations		—			629
Total current assets		9,563			14,944
Property and equipment, net		21,282			23,135
Deferred income taxes		12			—
Goodwill		1,383			1,855
Intangible assets, net		114			144
Debt issue costs		145			177
Other assets		86			92
Total assets	$	32,585		$	40,347
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	1,997		$	2,209
Accrued expenses		2,113			2,061
Customer advances		2,863			4,032
Income tax accruals		473			473
Revolving line of credit		1,759			2,023
Current portion of capital lease obligation		650			720
Current portion of long-term debt		524			491
Current liabilities of discontinued operations		—			41
Total current liabilities		10,379			12,050
Capital lease obligation, less current portion		792			1,443
Long-term debt, less current portion		8,191			8,715
Fair value of interest rate swaps		103			—
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
September 30, 2009 and 2008December, 2007		1,191			1,191
Additional paid-in capital		13,131			12,561
Retained earnings		(1,290	)		4,173
Accumulated other comprehensive income (loss)		88			(130	)
Total shareholders’ equity		13,120			17,795
Total liabilities and shareholders’ equity	$	32,585		$	40,347

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

32

BIOANALYTICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	For the Years Ended September 30,
	2009			2008
Service revenue	$	24,158		$	32,921
Product revenue		7,626			8,776
Total revenue		31,784			41,697
Cost of service revenue		20,959			22,941
Cost of product revenue		3,221			3,423
Total cost of revenue		24,180			26,364
Gross profit		7,604			15,333
Operating expenses:
Selling		3,296			3,912
Research and development		762			781
General and administrative		7,674			7,846
Impairment loss		472			—
Total operating expenses		12,204			12,539
Operating income (loss)		(4,600	)		2,794
Interest income		2			29
Interest expense		(1,063	)		(1,006	)
Other income		1			6
Income (loss) from continuing operations before income taxes		(5,660	)		1,823
Income taxes (benefit)		(197	)		1,328
Net income (loss) from continuing operations	$	(5,463	)	$	495
Discontinued Operations (Note 5)
Loss from discontinued operations before income taxes	$	—		$	(2,811	)
Loss on disposal		—			(474	)
Tax benefit		—			1,301
Net loss from discontinued operations after income taxes	$	—		$	(1,984	)
Net loss	$	(5,463	)	$	(1,489	)
Basic net income (loss) per share:
Net income (loss) per share from continuing operations	$	(1.11	)	$	0.10
Net loss per share from discontinued operations		—			(0.40	)
Basic net loss per share	$	(1.11	)	$	(0.30	)
Diluted net income (loss) per share:
Net income (loss) per share from continuing operations	$	(1.11	)	$	0.10
Net loss per share from discontinued operations		—			(0.40	)
Diluted net loss per share	$	(1.11	)	$	(0.30	)
Weighted common shares outstanding:
Basic		4,915			4,914
Diluted		4,915			4,968

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

33

BIOANALYTICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

(In thousands)

	Common shares				Additional paid-in-		Retained			Accumulated other comprehensive			Total shareholders'
	Number		Amount		capital		earnings			Income (loss)			equity
Balance at October 1, 2007		4,909		1,189		11,957		5,560			(152	)		18,554
Comprehensive loss:
Net income from continuing operations		—		—		—		495			—			495
Net loss on discontinued operations		—		—		—		(1,984	)		—			(1,984	)
Other comprehensive income (loss):
Foreign currency translation adjustments		—		—		—		—			22			22
Total comprehensive loss														(1,467	)
Stock compensation		—		—		592		—			—			592
Exercise of stock options		6		2		12		—			—			14
Adoption of ASC 740 cumulative adjustment		—		—		—		102			—			102
Balance at September 30, 2008		4,915	$	1,191	$	12,561	$	4,173		$	(130	)	$	17,795
Comprehensive loss:
Net loss from continuing operations		—		—		—		(5,463	)		—			(5,463	)
Other comprehensive income (loss):
Foreign currency translation adjustments		—		—		—		—			218			218
Total comprehensive loss														(5,245	)
Stock compensation		—		—		570		—			—			570
Balance at September 30, 2009		4,915	$	1,191	$	13,131	$	(1,290	)	$	88		$	13,120

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

34

BIOANALYTICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	YearsEndedSeptember30,
	2009			2008
Operating activities:
Net loss	$	(5,463	)	$	(1,489	)
Adjustments to reconcile net loss to net cash provided by continuing operating activities:
Net loss from discontinued operations, including loss on disposal		—			1,984
Depreciation and amortization		2,645			3,013
Goodwill impairment charge		472			—
Employee stock compensation expense		570			592
Bad debt expense		(2	)		58
Loss on interest rate swap		103			—
Loss on sale of property and equipment		37			24
Deferred income taxes		160			388
Changes in operating assets and liabilities:
Accounts receivable		3,680			(1,510	)
Inventories		338			(207	)
Refundable income taxes		739			(509	)
Prepaid expenses and other assets		49			151
Accounts payable		(212	)		969
Accrued expenses		52			433
Customer advances		(1,169	)		62
Net cash provided by continuing operating activities		1,999			3,959
Investing activities:
Capital expenditures		(834	)		(1,713	)
Proceeds from sale of property and equipment		—			2
Net cash used by continuing investing activities		(834	)		(1,711	)
Financing activities:
Payments of long-term debt		(491	)		(4,876	)
Borrowings on long-term debt		—			1,400
Payments on revolving line of credit		(19,052	)		(14,285	)
Borrowings on revolving line of credit		18,788			16,308
Payments on capital lease obligations		(721	)		(632	)
Net proceeds from the exercise of stock options		—			14
Net cash used by continuing financing activities		(1,476	)		(2,071	)
Cash flow of discontinued operations:
Cash provided (used) by operating activities		588			(3,361	)
Net cash provided by investing activities		—			669
Net cash provided (used) by discontinued operations		588			(2,692	)
Effect of exchange rate changes		258			13
Net increase (decrease) in cash and cash equivalents		535			(2,502	)
Cash and cash equivalents at beginning of year		335			2,837
Cash and cash equivalents at end of year	$	870		$	335

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

35

BIOANALYTICAL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands unless otherwise listed)

1.   DESCRIPTION OF THE BUSINESS

Bioanalytical Systems, Inc. and its subsidiaries (the “Company” or “BASi” or “we”) engage in 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. We conduct our businesses through our research facilities in Indiana, Oregon, and the United Kingdom and our manufacturing facility in Indiana. Our customers are located throughout the world.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated.

(b) Revenue Recognition

The majority of our service contracts involve the development of analytical methods and the processing of bioanalytical samples for pharmaceutical companies and generally provide for a fixed fee for each sample processed. Revenue is recognized under the specific performance method of accounting and the related direct costs are recognized when services are performed. Our research service contracts generally consist of preclinical studies, and 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 both types of contracts are provided in the period in which the loss becomes determinable. Revisions in profit estimates, if any, 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 we make at the inception of the contract. These estimates could change during the term of the contract and impact the revenue and costs reported in the consolidated financial statements. Revisions to estimates have generally not been material. Research service contract fees received upon acceptance are deferred until earned, and classified within customer advances. 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.

(c) Cash Equivalents

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

(d) Financial Instruments

Our credit risk consists principally of trade accounts receivable. We perform periodic credit evaluations of our customers’ financial conditions and generally do not require collateral on trade accounts receivable. We account for trade receivables based on the amounts billed to customers. Past due receivables are determined based on contractual terms. We do not accrue interest on any of our trade receivables.  The allowance for doubtful accounts is determined by management based on our historical losses, specific customer circumstances, and general economic conditions.  Periodically, management reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables when all attempts to collect have failed. Our allowance for doubtful accounts for continuing operations was $110 and $83 at September 30, 2009 and 2008, respectively.

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A summary of activity in our allowance for doubtful accounts is as follows:

	2009			2008
Opening balance	$	83		$	27
Charged to expense, net		39			58
Accounts written off		(12	)		(2	)
Ending balance	$	110		$	83

(e) Inventories

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

(f) Property and Equipment

We record property and equipment at cost, including interest capitalized during the period of construction of major facilities. We compute depreciation, including amortization on capital leases, using the straight-line method over the estimated useful lives of the assets, which we estimate to be: buildings and improvements, 34 to 40 years; machinery and equipment, 5 to 10 years, and office furniture and fixtures, 10 years. Depreciation expense for continuing operations was $2,609 in fiscal 2009 and $2,752 in fiscal 2008. Expenditures for maintenance and repairs are expensed as incurred.

Property and equipment, net, as of September 30, 2009 and 2008 consisted of the following:

	2009			2008
Land and improvements	$	490		$	497
Buildings and improvements		21,298			21,318
Machinery and equipment		20,462			20,456
Office furniture and fixtures		972			992
Construction in progress		40			149
		43,262			43,412
Less:  accumulated depreciation		(21,980	)		(20,277	)
Net property and equipment	$	21,282		$	23,135

(g) 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 of the amount by which the carrying amount of the asset exceeds the fair value of the asset.

We carry goodwill at cost. Other intangible assets with definite lives are stated at cost and are amortized on a straight-line basis over their estimated useful lives. All intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented, or exchanged, are recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives are not amortized.

Goodwill is tested annually for impairment, and more frequently if events and circumstances indicate that the asset might be impaired, using a two-step process.  In the first step, we compare the fair value of each reporting unit, as computed primarily by present value cash flow calculations, to its book carrying value, including goodwill. We do not believe that market value is indicative of the true fair value of the Company mainly due to average daily trading volumes of less than 1%.  If the fair value exceeds the carrying value, no further work is required and no impairment loss is recognized. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and we would then complete step 2 in order to measure the impairment loss. In step 2, the implied fair value is compared to the carrying amount of the goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, we would recognize an impairment loss equal to the difference. The implied fair value is calculated by allocating the fair value of the reporting unit (as determined in step 1) to all of its assets and liabilities (including unrecognized intangible assets) and any excess in fair value that is not assigned to the assets and liabilities is the implied fair value of goodwill.

37

The discount rate and sales growth rate are the two material assumptions utilized in our calculations of the present value cash flows used to estimate the fair value of the reporting units when performing the annual goodwill impairment test. Our three reporting units are West Lafayette/Oregon, Evansville and the UK based on the discrete financial information available which is reviewed by management.  We utilize a cash flow approach in estimating the fair value of the reporting units, where the discount rate reflects a weighted average cost of capital rate. The cash flow model used to derive fair value is most sensitive to the discount rate and sales growth assumptions used.  Due to fiscal year 2009 operating losses and lowered expectations for the near future, we performed an impairment test for our UK reporting unit as of June 30, 2009 using the assumptions detailed in the table below.  As a result of this test, we recorded a $472 impairment loss equal to the total value of the UK goodwill.  We performed our annual impairment test for all other reporting units at September 30, 2009.  Using the following assumptions, which are slightly below our internal forecasts and operating plans, the fair value of our West Lafayette/Oregon reporting unit is greater than the carrying value.

	Reporting Unit
	West Lafayette/Oregon	UK
Discount rate	22.0%	20.0%
Revenue growth rate in fiscal 2010	1.5%	27.0%
Revenue growth rate each year after fiscal 2010	3.0%	18.0%
Operating expense reduction in fiscal 2010	18.1%	17.0%
Operating expense increase each year after fiscal 2010	1.0%	9.0%

Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted sales growth rates and our cost of capital or discount rate, are based on the best available market information and are consistent with our internal forecasts and operating plans. Changes in these estimates or a continued decline in general economic conditions could change our conclusion regarding an impairment of goodwill and potentially result in a non-cash impairment loss in a future period.  The assumptions used in our impairment testing could be adversely affected by certain of the risks discussed in “Risk Factors” in Item 1A of this report.  There have been no significant events since the timing of our impairment tests that would have triggered additional impairment testing.

At September 30, 2009, remaining recorded goodwill was $1,383, and the net balance of other intangible assets was $114.

A summary of activity in our goodwill account is as follows:

	2009			2008
Opening balance	$	1,855		$	1,855
UK impairment charge		(472	)		—
Ending balance	$	1,383		$	1,855

On June 30, 2008, we sold the operating assets of our Clinical Pharmacology Research Unit located in Baltimore, Maryland.  As a result of this sale (more fully described in Note 5), we expensed the remaining $47 unamortized balance of the intangible assets of this unit in fiscal 2008.

38

Also, in fiscal 2008, the intangible assets amortization expense includes an accelerated amount of $143 for the write off of certain patents, licenses and trademarks.  This acceleration reflects a management decision to no longer support certain assets as active patents, licenses and trademarks since they had no related revenue-generating products.

The components of intangible assets subject to amortization are as follows:

		September 30, 2009
	Weighted average life (years)	Gross Carrying Amount		Accumulated Amortization
FDA compliant facility	10	$	302	$	188

		September 30, 2008
	Weighted average life (years)	Gross Carrying Amount		Accumulated Amortization
FDA compliant facility	10	$	302	$	158

Amortization expense for intangible assets for fiscal years ended September 30, 2009 and 2008 was $30 and $215 respectively.  As mentioned above, the large decline in amortization expense from fiscal 2008 to fiscal 2009 is the result of fiscal 2008 accelerated amortization of $143 for the write off of certain patents, licenses and trademarks as well as the $47 amortization related to the intangible assets of the CPRU unit in Baltimore. The following table provides information regarding estimated amortization expense for the next five fiscal years:

2010	$	30
2011		30
2012		30
2013		24
2014		—

(h) Advertising Expense

We expense advertising costs as incurred. Advertising expense was $219 and $201 for the years ended September 30, 2009 and 2008, respectively.

(i) Stock-Based Compensation

We have a stock-based employee compensation plan and a stock-based employee and outside director compensation plan, which are described more fully in Note 9.  All options granted under these plans have 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.  Our policy is to recognize expense for awards subject to graded vesting using the straight-line attribution method, reduced for estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and an adjustment is recognized at that time.

We use a binomial option-pricing model as our method of valuation for share-based awards, requiring us to make certain assumptions about the future, which are more fully described in Note 9.  Stock-based compensation expense for employee stock options for the years ended September 30, 2009 and 2008 was $570 and $592 with related tax benefits of $0 and $154, respectively.

39

(j) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  We record valuation allowances based on a determination of the expected realization of tax assets.

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.

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 litigation. Accordingly, if such resolutions are favorable, we would reduce the carrying value of our reserve. 

(k) New Accounting Pronouncements

In August 2008, the SEC announced that it will issue for comment a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with IFRS (International Financial Reporting Standards). IFRS is a comprehensive series of accounting standards published by the IASB (International Accounting Standards Board). Under the proposed roadmap, we could be required to prepare financial statements in accordance with IFRS beginning in fiscal 2014. The SEC has indicated it will make a determination in 2011 regarding mandatory adoption of IFRS.

In April 2009, the FASB (Financial Accounting Standards Board) issued an accounting pronouncement under ASC 825-10-50 extending the disclosure requirements regarding the fair value of financial instruments.  ASC 825-10-50 requires disclosures in interim reporting periods and in financial statements for annual reporting periods regarding the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not on the company's balance sheet.  ASC 825-10-50 requires entities to disclose the methods and significant assumptions used to estimate the fair value of financial instruments and describe changes in methods and significant assumptions, in both interim and annual financial statements.  ASC 825-10-50 is effective for interim reporting periods ending after June 15, 2009 (the quarter ended June 30, 2009 for the Company).  While the adoption of ASC 825-10-50 impacts our disclosures, it did not have an impact on our consolidated financial position or results of operations.

In May 2009, the FASB issued a new accounting standard on the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued (“subsequent events”). The standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that occur for a potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This standard is effective for interim and annual periods ending after June 15, 2009. The adoption of this standard did not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued a new standard on the FASB Accounting Standards Codification, or ASC. This standard was issued to establish the FASB ASC as the source of authoritative accounting principles recognized by the FASB in the preparation of financial statements in conformity with generally accepted accounting principles, or GAAP. Essentially, the GAAP hierarchy was modified to only include 2 levels – authoritative and non-authoritative. This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. While the adoption of the FASB ASC impacted our disclosures, it did not have an impact on our consolidated financial position or results of operations.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, which amends ASC Topic 605, Revenue Recognition.  ASU 2009-13 revises the current accounting treatment to specifically address how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting.  This guidance is applicable to revenue arrangements entered into or materially modified during our first fiscal year that begins after June 15, 2010.  The guidance may be applied either prospectively from the beginning of the fiscal year for new or materially modified arrangements or retrospectively.  We are currently evaluating this authoritative guidance to determine any potential impact that it may have on our consolidated financial statements.

40

(l) Fair Value

The Company adopted the provisions of the Fair Value Measurements and Disclosure Topic effective for interim reporting periods ending after June 15, 2009 as required by the FASB ASC. This Topic defines fair value, establishes a consistent framework for measuring fair value and expands the disclosure requirements about fair value measurements.

This Topic also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s judgment about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the inputs as follows:

• Level 1 – Valuations based on quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

• Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

• Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

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.  See Note 7 for further discussion of the fair value of our interest rate swap.

(m) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates as part of the issuance of these consolidated financial statements include but are not limited to the determination of fair values, deferred tax valuations, depreciation, impairment charges and stock compensation.  Our actual results could differ from those estimates.

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 fiscal year ended September 30, 2009 as they are anti-dilutive.

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

	Years Ended September 30,
	2009			2008
Basic net income (loss) per share from continuing operations:
Net income (loss) applicable to common shareholders	$	(5,463	)	$	495
Weighted average common shares outstanding		4,915			4,914
Basic net income (loss) per share from continuing operations	$	(1.11	)	$	0.10
Diluted net income (loss) per share from continuing operations:
Diluted net income (loss) applicable to common shareholders	$	(5,463	)	$	495
Weighted average common shares outstanding		4,915			4,914
Dilutive stock options/shares		—			54
Diluted weighted average common shares outstanding		4,915			4,968
Diluted net income (loss) per share from continuing operations	$	(1.11	)	$	0.10

At September 30, 2009 and 2008, we had 620 and 700 shares, respectively, issuable upon exercise of stock options that are not included in our outstanding share calculation as they are anti-dilutive.

4.  INVENTORIES

Inventories at September 30 consisted of the following:

	2009			2008
Raw materials	$	1,732		$	1,897
Work in progress		131			268
Finished goods		271			202
	$	2,134		$	2,367
Obsolescence reserve		(287	)		(183	)
	$	1,847		$	2,184

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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 they assumed 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 have 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 should AP USA and Algorithme fail to meet their lease commitment.

Accordingly, in the accompanying consolidated statements of operations and cash flows we have segregated the results of the CPRU as discontinued operations for fiscal 2008.  The loss from discontinued operations reflects the operating loss of the CPRU.  The CPRU was previously included in our Services segment.

Condensed Statements of Operations from Discontinued Operations

(in thousands)	Year Ended September 30,
	2009		2008
Net Sales	$	—	$	2,192
Loss before income taxes and disposal		—		(2,811	)
Loss on disposal		—		(474	)
Loss from operations before tax benefit		—		(3,285	)
Income tax benefit		—		1,301
Net loss	$	—	$	(1,984	)

Summary Balance Sheet of Discontinued Operations

(in thousands)	September 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 other liabilities		—		41
Equity		—		588
Total liabilities and equity	$	—	$	629

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6.  LEASE ARRANGEMENTS

The total amount of equipment capitalized under capital lease obligations as of September 30, 2009 and 2008 was $3,884. Accumulated amortization on capital leases at September 30, 2009 and 2008 was $1,981 and $1,338, respectively. Amortization of assets acquired through capital leases is included in depreciation expense.

During fiscal 2009, we did not acquire any new equipment through capital lease arrangements.  We acquired equipment totaling $1,145 through capital lease arrangements during the year ended September 30, 2008. Future minimum lease payments on capital leases at September 30, 2009 are as follows:

	Principal		Interest		Total
2010	$	650	$	176	$	826
2011		366		113		479
2012		279		63		342
2013		147		12		159
2014		—		—		—
	$	1,442	$	364	$	1,806

We lease office space and equipment under noncancelable operating leases that terminate at various dates through 2013, with the UK building lease expiring in 2023. Certain of these leases contain renewal options. Total rental expense under these leases was $485 and $1,609 in fiscal 2009 and 2008, respectively.  The decrease in rental expense in the current year is primarily due to the sale of our CPRU unit on June 30, 2008 as described in Note 5.  Beginning in the fourth quarter of fiscal 2008, we did not have the building lease payments for the CPRU unit.

Future minimum lease payments for the following fiscal years under operating leases at September 30, 2009 are as follows:

2010	$	434
2011		424
2012		421
2013		405
2014		402
After 2014		2,918
	$	5,004

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7.  DEBT ARRANGEMENTS

Long-term debt consisted of the following at September 30:

	2009		2008
Mortgage note payable to a bank, payable in monthly principal and interest installments of $40 until June 1, 2010 when it adjusts under the terms of the note. Interest is fixed at 7.1% for three years beginning June 1, 2007.  Collateralized by underlying property.  Due November, 2012.	$	4,117	$	4,294
Mortgage note payable to a bank, payable in monthly principal and interest installments of $19. The interest rate is 6.1%. Collateralized by underlying property. Due February, 2011.		1,489		1,623
Mortgage note payable to a bank, payable in monthly principal and interest installments of $17 until June 1, 2010, when it adjusts under the terms of the note. Interest is fixed at 7.1% for three years beginning June 1, 2007.  Collateralized by underlying property.  Due November, 2012.		1,897		1,967
Note payable to a bank, payable in monthly principal installments of $9 plus interest.  The interest rate is 6.1%. Collateralized by West Lafayette and Evansville properties. Due December, 2010.		1,212		1,322
	$	8,715	$	9,206
Less current portion		524		491
	$	8,191	$	8,715

The following table summarizes our principal payment obligations for the years ending September 30:

2010	$	524
2011		2,727
2012		306
2013		5,158
	$	8,715

Cash interest payments of $917 and $872 were made in 2009 and 2008, respectively.

Mortgages and note payable

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. The outstanding balance on this loan at September 30, 2009 was $1,212.Interest on the loan is equal to LIBOR plus 215 basis points. Monthly payments are $9 plus interest. The loan is collateralized by real estate at our West Lafayette and Evansville, Indiana locations. Regions also holds approximately $7,500 of additional mortgage debt on these facilities.  We entered into interest rate swap agreements with respect to two of these loans to fix the interest rate at 6.1%.  We entered into these derivative transactions to hedge interest rate risk of this debt obligation and not to speculate on interest rates. 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 $103 at September 30, 2009 and $0 at September 30, 2008, which was recorded in our condensed consolidated financial statements as interest expense and a long term liability.  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 consolidated financial statements is expected to be zero.

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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 contain both cross-default provisions with each other and with the revolving line of credit with Entrepreneur Growth Capital 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 waived our violation of our fixed charge coverage ratio covenant through March 31, 2009.  On May 18, 2009, Regions amended 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 are less restrictive to us.  At September 30, 2009, we were in compliance with the amended fixed charge covenant ratio.  Based on projections for fiscal 2010, we expect to be in breach of the Regions covenants once the computations and requirements revert to the original agreement after December 31, 2009.  On January 7, 2010, Regions waived our expected violation of the fixed charge coverage ratio covenant through December 31, 2009.  On January 13, 2010, Regions amended the computations and requirements for the fixed charge coverage ratios through fiscal year 2010.

Revolving Line of Credit

Through December 31, 2009, we had a revolving line of credit (“Agreement”), with National City, which we used for working capital and other purposes. Borrowings under the Agreement were 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 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 required that we maintain certain ratios of interest-bearing indebtedness to EBITDA and net cash flow to debt servicing requirements.  The Agreement also contained 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 fixed charge coverage ratio and tangible net worth covenants.  Under the amended Agreement, National City reduced the maximum available amount from $5,000 to $3,000 and agreed to waive our violations of the fixed charge coverage ratio covenant and the tangible net worth covenant through June 30, 2009.  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. As of September 30, 2009, we were in compliance with the amended computations.  On December 31, 2009, we executed a Fifth Amendment to the Amended and Restated Credit Agreement with PNC Bank, as successor by merger to National City, extending the maturity date of the line of credit until January 15, 2010.

At September 30, 2009, we had $3,000 of total borrowing capacity from the National City line of credit, of which $1,759 was outstanding.

On January 13, 2010, we entered into a new $3,000 revolving line of credit agreement (“Credit Agreement”) with Entrepreneur Growth Capital LLC (EGC) to replace the National City line of credit that expires on January 15, 2010.  The initial term of the Credit Agreement expires on January 31, 2011.  Borrowings bear interest at an annual rate equal to Citibank’s Prime Rate plus five percent (5%), or 8.25% as of January 13, 2010 with minimum monthly interest of $15.  Interest is paid monthly.  The line of credit also carries an annual facilities fee of 2% and a 0.2% collateral monitoring fee.  The covenants in the Credit Agreement require that we maintain a minimum tangible net worth of $9,500, which may restrict the amount we can borrow to fund future operations, acquisitions and capital expenditures.  The Credit Agreement also contains cross-default provisions with the Regions loans and any future EGC loans.

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8.  INCOME TAXES

Significant components of our deferred tax liabilities and assets as of September 30 are as follows:

	2009			2008
Long-term deferred tax assets:
Tax over book depreciation	$	(842	)	$	(770	)
Lower tax basis on assets of acquired company		(418	)		(428	)
Domestic net operating loss carryforward		1,440			641
Stock compensation expense		363			213
Foreign net operating loss		1,293			—
Foreign tax credit carryover		119			—
AMT credit carryover		13			—
Total long-term deferred tax assets	$	1,968		$	(344	)
Current deferred tax assets:
Inventory pricing	$	186		$	128
Accrued compensation and vacation		240			244
Accrued expenses and other – net		—			73
Foreign tax credit carryover		—			71
Foreign net operating loss		(1	)		540
Total current deferred tax assets	$	425		$	1,056
Valuation allowance for deferred tax assets		(2,381	)		(540	)
Net deferred tax assets	$	12		$	172

Significant components of the provision (benefit) for income taxes are as follows as of the year ended September 30:

	2009			2008
Current:
Federal	$	(345	)	$	(505	)
State		(11	)		144
Foreign		(1	)		—
Total Current	$	(357	)	$	(361	)
Deferred:
Federal	$	118		$	341
State		41			45
Foreign		1			2
Total deferred	$	160		$	388
	$	(197	)	$	27

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The effective income tax rate on continuing operations varied from the statutory federal income tax rate as follows:

	2009			2008
Statutory federal income tax rate		(34 .0	)%		34 .0	%
Increases (decreases):
Nondeductible expenses		2 .6			5 .0
State income taxes, net of federal tax benefit		(5 .4	)		10 .0
Nontaxable foreign (gains) losses		2 .5			12 .4
Uncertain tax positions		—			12 .8
Valuation allowance		32 .9			—
Other		(2 .1	)		(1 .4	)
		(3 .5	)%		72 .8	%

We have not provided any U.S. income taxes benefit on the accumulated losses of our UK subsidiary. In fiscal 2009 and 2008, our foreign operations generated losses before income taxes of $2,293 and $669, respectively.  We have foreign net operating loss carryforwards of $4,040 that have an indefinite life under current UK tax law.  Payments made in 2009 and 2008 for income taxes amounted to $1 and $186, respectively.

Realization of deferred tax assets associated with the net operating loss carryforward and credit carryforward is dependent upon generating sufficient taxable income prior to their expiration.  We have a valuation allowance for the deferred tax asset related to the foreign net operating losses.  In fiscal 2009, a valuation allowance of $1,088 was established for our domestic operations to reflect our estimate of the temporary deductible differences that may expire prior to their utilization.

At September 30, 2009, we had domestic net operating loss carryforwards of approximately $3,242 for federal and $3,968 for state, which expire from September 30, 2028 through 2029.  Also, we have a foreign tax credit carryforward of approximately $119, which expires on September 30, 2016.  Further, we have an alternative minimum tax credit carryforward of approximately $13 available to offset future federal income taxes.  This credit has an unlimited expiration.

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 benefit 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. At the end of fiscal 2008, a $473 liability for uncertain income tax positions existed under ASC 740.

A reconciliation of the total amounts of unrecognized tax liability at September 30, 2008 and 2009 is as follows:

Beginning of year balance, October 1, 2007	$	240
Increases to tax positions in current year	259
Increases to tax positions in prior years	—
Decreases to tax positions in prior years	(26)
Decreases due to lapse of statute of limitations	—
End of year balance, September 30, 2008	$	473
Increases to tax positions in current year	—
Increases to tax positions in prior years	—
Decreases to tax positions in prior years	—
Decreases due to lapse of statute of limitations	—
End of year balance, September 30, 2009	$	473

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 litigation. Accordingly, if such resolutions are favorable, we would reduce the carrying value of our reserve.  Interest and penalties are included in this reserve.  We file income tax returns in the U.S., several U.S. States, and the foreign jurisdiction of the United Kingdom.  We remain subject to examination by taxing authorities in the jurisdictions in which we have filed returns for years after 2005.

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9.  STOCK-BASED COMPENSATION

Summary of Stock Option Plans and Activity

In March 2008, our shareholders approved the 2008 Stock Option Plan (the “Plan”) to replace the 1997 Outside Director Stock Option Plan and the 1997 Employee Stock Option Plan.  Future common shares will be granted from the 2008 Stock Option Plan.  The purpose of the Plan is to promote our long-term interests by providing a means of attracting and retaining officers, directors and key employees.  The Compensation Committee shall administer the Plan and approve the particular officers, directors or employees eligible for grants.  Under the Plan, employees are granted the option to purchase our common shares at fair market value on the date of the grant.  Generally, options granted vest and become exercisable in four equal installments commencing one year from date of grant and expire upon the earlier of the employee’s termination of employment with us, or ten years from the date of grant.  This plan terminates in fiscal 2018.

The maximum number of common shares that may be granted under the Plan is 500 shares.  At September 30, 2009, 336 shares remain available for grants under the Plan.

The weighted-average assumptions used to compute the fair value of options granted for the fiscal years ended September 30 were as follows:

	2009			2008
Risk-free interest rate		2.89	%		3.74	%
Dividend yield		0.00	%		0.00	%
Volatility of the expected market price of the Company's common stock		55.00 77.00	%- %		44.00 59.00	%- %
Expected life of the options (years)		8.0			7.0

A summary of our stock option activity and related information for the years ended September 30, 2009 and 2008, respectively, is as follows (in thousands except for share prices):

	Options (shares)			Weighted- Average Exercise  Price		Weighted- Average Grant Date Fair Value		Weighted-Average Remaining Contractual Life  (Years)		Aggregate Intrinsic Value
Outstanding - October 1, 2007		615		$	6.00
Exercised		(6	)	$	4.94
Granted		189		$	6.40	$	3.67
Terminated		(44	)	$	6.74
Outstanding - September 30, 2008		754		$	6.06	$	3.50		7.7	$	39
Outstanding - October 1, 2008		754		$	6.00
Exercised		-		$	-
Granted		60		$	4.07	$	2.73
Terminated		(194	)	$	6.74
Outstanding - September 30, 2009		620		$	5.97	$	3.36		7.4	$	-
Exercisable at September 30, 2009		321		$	6.13	$	3.41		6.4	$	-

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A summary of non-vested options for the year ended September 30, 2009 is as follows:

	Number of Shares			Weighted- Average Grant Date Fair Value
Non-vested options at October 1, 2008		449		$	3.62
Granted		60		$	2.73
Vested		(16	)	$	5.35
Forfeited		(194	)	$	3.69
Non-vested options at September 30, 2009		299		$	3.30

We received$14 from the exercise of qualified employee stock options in fiscal 2008, for which no tax benefit was recognized.  The aggregate intrinsic value of those shares exercised was $12.  No options were exercised in fiscal 2009.   As of September 30, 2009, our total unrecognized compensation cost related to non-vested stock options was $453 and is expected to be recognized over a weighted-average service period of 1.22 years.

The following table summarizes outstanding and exercisable options as of September 30, 2009 (in thousands except per share amounts):

Range of Exercise Prices	Shares Outstanding		Weighted- Average Remaining Contractual Life (Years)		Weighted- Average Exercise Price		Shares Exercisable		Weighted-  Average Exercise Price
$     2.80 - 4.58		123		5 .56	$	4 .17		93	$	4 .38
$     4.59 - 5.74		192		7 .96	$	5 .09		42	$	5 .34
$     5.75 - 8.79		305		7 .68	$	7 .25		186	$	7 .18

10.  RETIREMENT PLAN

We have a 401(k) Retirement Plan (the “Plan”) covering all employees over twenty-one years of age with at least one year of service. Under the terms of the Plan, we contribute 1% of each participant’s total wages to the Plan and match 22% of the first 10% of the employee contribution. The Plan also includes provisions for various contributions which may be instituted at the discretion of the Board of Directors. The contribution made by the participant may not exceed 30% of the participant’s annual wages. We made no discretionary contributions under the plan in 2009 and 2008. Contribution expense was $296 and $293 in fiscal 2009 and 2008, respectively.

11.  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. We evaluate performance and allocate resources based on these segments. Certain of our assets are not directly attributable to the Services or Products segments. These assets are grouped into the Corporate segment and include cash and cash equivalents, deferred income taxes, refundable income taxes, debt issue costs and certain other assets. We do not allocate such items to the principal segments because they are not used to evaluate their financial position. The accounting policies of these segments are the same as those described in the summary of significant accounting policies.  As a result of the sale of our CPRU described in Note 5, the segment information reflects only the operating results by segment for continuing operations.

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(a) Operating Segments

	Years Ended September 30,
	2009			2008
Revenue:
Service	$	24,158		$	32,921
Product		7,626			8,776
	$	31,784		$	41,697
Operating (loss) income from continuing operations:
Service	$	(3,884	)	$	2,139
Product		(716	)		655
	$	(4,600	)	$	2,794
Corporate Expenses		1,060			971
Income (loss) from continuing operations before income taxes	$	(5,660	)	$	1,823

	Years Ended September 30,
	2009		2008
Identifiable assets:
Service	$	19,102	$	23,594
Product		8,046		9,771
Corporate		5,437		6,982
	$	32,585	$	40,347
Goodwill, net:
Service	$	1,009	$	1,481
Product		374		374
	$	1,383	$	1,855
Intangible assets, net:
Service	$	114	$	144
Product		—		—
	$	114	$	144
Depreciation and amortization:
Service	$	2,377	$	2,653
Product		268		360
	$	2,645	$	3,013
Capital Expenditures:
Service	$	698	$	1,505
Product		136		208
	$	834	$	1,713

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(b) Geographic Information

	Years Ended September 30,
	2009		2008
Sales to External Customers:
North America	$	28,656	$	35,866
Pacific Rim		661		650
Europe		2,215		4,671
Other		252		510
	$	31,784	$	41,697
Long-lived Assets:
North America	$	22,472	$	24,170
Europe		550		1,233
	$	23,022	$	25,403

(c) Major Customers

In 2009 and 2008, Pfizer accounted for approximately 7.0% and 7.4%, respectively, of our total revenues from continuing operations and 3.2% and 10.0% of total trade accounts receivable from continuing operations, respectively.

12.  RELATED PARTY TRANSACTIONS

On January 1, 2008, we paid the remaining principal balance of $500 in cash of the 6% subordinated convertible note payable to one of our directors.

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13.  CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the unaudited quarterly results of operations for fiscal years 2009 and 2008 (in thousands except per share amounts). As a result of the sale of our CPRU described in Note 5, the quarterly financial data only reflects the operating results for continuing operations.

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2009
Total Revenue	$	8,076		$	7,066		$	8,121		$	8,521
Gross Profit		2,047			872			2,135			2,550
Net loss from continuing operations		(1,584	)		(1,831	)		(632	)		(1,416	)
Basic net loss per share from continuing operations		(0.32	)		(0.37	)		(0.13	)		(0.29	)
Diluted net loss per share from continuing operations		(0.32	)		(0.37	)		(0.13	)		(0.29	)
2008
Total Revenue	$	10,565		$	10,301		$	11,447		$	9,384
Gross Profit		4,086			3,959			4,316			2,972
Net income (loss) from continuing operations		587			432			407			(931	)
Basic net income (loss) per share from continuing operations		0.12			0.09			0.08			(0.19	)
Diluted net income (loss) per share from continuing operations		0.12			0.09			0.08			(0.19	)

14.   SUBSEQUENT EVENTS

We evaluated subsequent events through January 13, 2010, the date our consolidated financial statements were issued. On December 31, 2009, we executed a Fifth Amendment to the Amended and Restated Credit Agreement with PNC Bank, as successor by merger to National City Bank, extending the maturity date of the line of credit to January 15, 2010. On January 13, 2010, we entered into a new revolving line of credit agreement with Entrepreneur Growth Capital (EGC), which we use for working capital and other purposes, to replace the National City line of credit that expires on January 15, 2010.  See Note 7 for additional information.  On January 7, 2010, Regions waived our expected violation of the fixed charge coverage ratio at December 31, 2009.  On January 13, 2010 Regions amended the computations and requirements of the fixed charge coverage ratios through our fiscal year 2010.

No additional matters were identified that would materially impact our consolidated financial statements or require disclosure.

15.  RISKS AND UNCERTAINTIES

Our long-term strategic objective is to maximize the Company’s intrinsic value per share.   However, in the second quarter of fiscal 2009, in response to cancellations and delays of projects by our customers, we began to operate the business in a manner designed to place more emphasis on cash flow generation.  Thus, our short-term tactical objective is to maximize free cash flow from operating activities.

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The overall economic downturn first began to negatively affect our operating results in fiscal 2009.  Revenues for fiscal 2009 declined approximately 24% or $10 million from our prior fiscal year due to a lower volume of new bookings, and the delaying and canceling by sponsors of projects previously booked.  The lower sales volume and a decrease in our operating expenses of approximately 3% created a net loss of $5.5 million and a decline in cash flow from operations from approximately $4 million in fiscal 2008 to $2 million in fiscal 2009.  We experienced a 10% increase in revenue in the second half versus the first half of fiscal 2009 as the volume of bookings slowly improved late in the year.   To improve cash flow and reduce our break-even level, we implemented cost controls starting in the second quarter of fiscal 2009.  One such control was a reduction in work force, through both attrition and terminations, impacting all areas of operations.  This reduced our annual compensation expense and is expected to save us approximately $2.4 million annually. These cost control measures resulted in the reduction of operating expenses, excluding goodwill impairment, by approximately 25% ($1.6 million) in the second half of fiscal 2009 compared to the first half of the year. In addition, we reduced our capital expenditures by 51% ($900) in fiscal 2009.

In fiscal 2010, we will continue to monitor and address the impact that the challenging economy is having on our company and industry.   In fiscal 2010, we expect to see slow but continued improvement in the volume of new bookings.  We also expect improved gross profit margins due to the cost controls implemented.  If current economic factors and industry trends for the CRO industry continue or deteriorate in fiscal 2010, our results of operations could be adversely affected.  We have replaced our revolving line of credit, which was set to expire in January 2010, with a new line of credit with similar borrowing capacity from Entrepreneur Growth Capital (EGC).  We have also amended the financial covenants of our Regions debt to be more favorable to the Company.  We will continue to assess the need for additional cost controls such as freezing non-essential capital expenditures and current wage rates, reducing employee costs through personnel reductions either by attrition or reduction in workforce, reducing non-essential expenses, and monitoring our operations for efficiencies to further reduce our break-even point.  We have debt, lease and tax obligations of approximately $2.3 million in fiscal 2010.  We anticipate receiving a tax refund of approximately $375 in the third quarter of fiscal 2010.  Based on our expectation of a small increase in revenue, the availability on our line of credit, and the impact of the cost reductions implemented, we project that we will have the liquidity required to meet our fiscal 2010 operations and debt obligations.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Bioanalytical Systems Inc.

We have audited the consolidated balance sheets of Bioanalytical Systems, Inc. as of September 30, 2009 and 2008, and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss) and cash flows for the years then ended.  These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bioanalytical Systems, Inc as of September 30, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Crowe Horwath LLP

Indianapolis, Indiana

January 13, 2010

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 ITEM 9-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A-CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance to our management and board of directors that information required to be disclosed in the reports we file or submit to the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on an evaluation conducted under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2009, including those procedures described below, we, including our Chief Executive Officer and our Chief Financial Officer, determined that those controls and procedures were effective.

Changes in Internal Controls

In fiscal 2009, we initiated an improved process of tracking our tax 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.

Except as noted above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during fiscal 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Management’s assessment identified transaction-level material weakness in the design and operating effectiveness of controls related to income taxes.  Based on this evaluation, we concluded that we did not maintain effective internal control over financial reporting as of September 30, 2009.  We determined that our company’s accounting staff does not have sufficient technical accounting knowledge relating to accounting for income taxes which could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our financial statements may not be prevented or detected on a timely basis.  

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate the material weakness. We will develop an enhanced tax provision model to capture, summarize and consolidate tax provision data to facilitate the preparation of our income tax provision and provide additional training of accounting staff related directly to accounting for income taxes. We intend to consider the results of our remediation efforts and related testing as part of our fiscal 2010 assessment of the effectiveness of our internal control over financial reporting.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this report.

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ITEM 9B-OTHER INFORMATION

None.

PART III

ITEM 10-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following information concerns the persons who served as the directors of the Company as of September 30, 2009, with the additions of David L. Omachinski and John B. Landis, Ph.D., who were elected to the Board on October 8, 2009 and November 12, 2009, respectively. Except as indicated in the following paragraphs, the principal occupations of these persons have not changed in the past five years. Information concerning the executive officers of the Company may be found in “Executive Officers of the Registrant” under Item 1 of this report, which is incorporated herein by reference.  Information required by Part III, Item 10 is incorporated herein by this reference from the Company’s Proxy Statement for 2010 Annual Meeting.

Name	Age	Position
William E. Baitinger	76	Chairman
Larry S. Boulet	63	Director
David W. Crabb	56	Director
Leslie B. Daniels	62	Director
John B. Landis, Ph.D.	56	Director
David L. Omachinski	57	Director
Richard M. Shepperd	69	Director, President and Chief Executive Officer

William E. Baitinger has served as a director of the Company since 1979. Mr. Baitinger was Director of Technology Transfer for the Purdue Research Foundation from 1988 until 2000. In this capacity he was responsible for all licensing and commercialization activities from Purdue University. He currently serves as Special Assistant to the Vice President for Research at Purdue University. Mr. Baitinger has a Bachelor of Science degree in Chemistry and Physics from Marietta College and a Master of Science degree in Chemistry from Purdue University.

Larry S. Boulet has served as a director of the Company since May 2007.  Mr. Boulet was a Senior Audit Partner with PriceWaterhouseCoopers (PWC) and a National Financial Services Industry Specialist.  For the last five years of his career with PWC, Mr. Boulet served as Partner-in-charge of the Indianapolis office’s Private Client Group.  Prior to serving on our Board, he served on the Board of Directors of Century Realty Trust, an Indiana based, real estate investment trust.  He also served as Audit Committee Chairman until the Trust’s sale and liquidation in 2007.  Currently, Mr. Boulet also serves on the Indiana State University Foundation Board of Directors, where he is a past Chairman of the Board.  He holds a Bachelor of Science degree in Accounting from Indiana State University.

David W. Crabb, M.D. has served as a director of the Company since February, 2004. He has been Chairman of the Indiana University Department of Medicine since 2001. Previously he had served as Chief Resident of Internal Medicine and on the Medicine and Biochemistry faculty of Indiana University. He was appointed Vice Chairman for Research for the department and later Assistant Dean for Research. Dr. Crabb serves on several editorial boards and on the Board of Indiana Alcohol Research Center. He was a recipient of a NIH Merit award and numerous other research and teaching awards.

Leslie B. Daniels has served as a director of the Company since June 2003. Mr. Daniels is a founding partner of CAI, a private equity fund in New York City. He previously was President of Burdge, Daniels & Co., Inc., a principal in venture capital and buyout investments as well as trading of private placement securities, and before that, a Senior Vice President of Blyth, Eastman, Dillon & Co. where he had responsibility for the corporate fixed income sales and trading departments. Mr. Daniels is a former Director of Aster-Cephac SA, IVAX Corporation, MIM Corporation, Mylan Laboratories, Inc., NBS Technologies Inc. and MIST Inc. He was also Chairman of Zenith Laboratories, Inc. and currently serves as a Director of SafeGuard Health Enterprises, Inc.

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John B. Landis, Ph.D. was elected as a director of the Company on November 12, 2009.  Dr. Landis retired from his position as Senior Vice President, Pharmaceutical Sciences of Schering-Plough in October 2008 and is currently an Adjunct Professor at Purdue University's Department of Chemistry.  Prior to joining Schering-Plough in 2003, Dr. Landis served in various management positions with Pharmacia Corporation and The Upjohn Company, including Director of Quality Control, Executive Director of Quality Control, Vice President of Quality Control, Vice President of Analytical Research, Vice President of CNS Psychiatry, and Senior Vice President of Preclinical Development.  Dr. Landis received his Bachelor of Science in Chemistry from Kent State University, his Masters in Analytical Chemistry from Purdue University and his Ph.D. in Analytical Chemistry from Purdue University.

David L. Omachinski was elected as a director of the Company on October 8, 2009.  Mr. Omachinski is currently an executive management consultant.  From 1993 to 2005, he served in various executive management positions with Oshkosh B'Gosh, Inc., including President, Chief Operating Officer, Chief Financial Officer, Vice President of Finance and Treasurer.  Mr. Omachinski also previously held various executive roles with Schumaker, Romenesko & Associates, S.C., a Wisconsin-based, full service, regional accounting firm. Mr. Omachinski also serves on the board of Anchor BanCorp Wisconsin, Inc. since 1999, the University of Wisconsin-Oshkosh Foundation since 2003, and Chamco, Inc. since 2002.  Mr. Omachinski received his Bachelor of Business Administration from the University of Wisconsin-Oshkosh and is a certified public accountant.

Richard M. Shepperd was elected President and Chief Executive Officer of the Company in September 2006, and in May 2007, agreed to extend his term until December 2009.  Mr. Shepperd served for two years prior to joining the Company with Able Laboratories, Inc., of Cranbury, New Jersey ("Able") as its Chief Restructuring Officer and Director of Restructuring. Able was formerly a generic pharmaceutical manufacturing company which filed a voluntary petition for bankruptcy on July 18, 2005 following the loss of FDA approval for its product line. Mr. Shepperd's duties for Able included exercising executive authority over all operational and restructuring activities of Able, which included advising its Board, creditors committee and courts regarding strategies to maintain and realize the most value from the company's assets. Able was not affiliated with the Company. For the two years prior to serving with Able, Mr. Shepperd served as an independent management consultant for various businesses. In that capacity, he advised these businesses on developing strategies to improve their financial health and maximize the assets of those organizations.

The Board of Directors has established an Audit Committee. The Audit Committee is responsible for recommending independent auditors, reviewing, in connection with the independent auditors, the audit plan, the adequacy of internal controls, the audit report and management letter and undertaking such other incidental functions as the board may authorize.  Larry S. Boulet, William E. Baitinger, David W. Crabb, Leslie B. Daniels and David Omachinski are the members of the Audit Committee. The Board of Directors has determined that each of Mr. Daniels and Mr. Boulet is an audit committee financial expert (as defined by Item 401(h) of Regulation S-K). All of the members of the Audit Committee are “independent” (as defined by Item 7(d)(3)(iv) of Schedule 14A).

The Board of Directors has adopted a Code of Ethics (as defined by Item 406 of Regulation S-K) that applies to the Company’s Officers, Directors and employees, a copy of which is incorporated herein by reference to Exhibit 14 to Form 10-K for the fiscal year ended September 30, 2006.

The information contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement is incorporated herein by reference.

ITEM 11-EXECUTIVE COMPENSATION

The information included under the captions “Election of Directors – Compensation of Directors,” “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement is incorporated herein by reference in response to this item.

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ITEM 12-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained under the caption “Compensation of Directors and Executive Officers” in the Proxy Statement is incorporated herein by reference in response to this item.

For additional information regarding our stock option plans, please see Note 9 in the Notes to Consolidated Financial Statements in this report.

ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information included under the caption “Certain Relationships and Related Transactions” in the Proxy Statement is incorporated herein by reference in response to this item.

ITEM 14-PRINCIPAL ACCOUNTING FEES AND SERVICES

The information included under the caption “Selection of Independent Accountants” in the Proxy Statement is incorporated herein by reference.

[Remainder of page intentionally left blank.]

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PART IV

ITEM 15-EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Documents filed as part of this Report.

1. Financial Statements:  See Index to Consolidated Financial Statements under Item 8 on Page 30 of this report.

2. Financial Statement Schedules:  Schedules are not required, are not applicable or the information is shown in the Notes to the Consolidated Financial Statements.

3. Exhibits:  The following exhibits are filed as part of,or incorporated by reference into, this report:

Number		Description of Exhibits
(2)	2.1	Asset Purchase Agreement, dated June 30, 2008, by and among Bioanalytical Systems, Inc., BASi Maryland, Inc., Algorithme Pharma USA Inc. and Algorithme Pharma Holdings Inc (incorporated by reference to Exhibit 2.1 of Form 8-K filed July 7, 2008).
(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).
	4.2	See Exhibits 3.1 and 3.2 to this Form 10-K.
(10)	10.1	Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Plan, as amended January 24, 2004 (*) (incorporated by reference to Appendix A to definitive Proxy Statement filed January 28, 2003 SEC File No. 000-23357).
	10.2	Form of Bioanalytical Systems, Inc. 1997 Employee Incentive Stock Option Agreement (*) (incorporated by reference to Exhibit 10.27 to Registration Statement on From S-1, Registration No. 333-36429).
	10.3	1997 Bioanalytical Systems, Inc. Outside Director Stock Option Plan, as amended January 24, 2004 (*) (incorporated by reference to Appendix B to definitive Proxy Statement filed January 28, 2003 SEC File No. 000-23357).
	10.4	Form of Bioanalytical Systems, Inc. 1997 Outside Director Stock Option Agreement (*) (incorporated by reference to Exhibit 10.29 to Registration Statement on Form S-1, Registration No. 333-36429).
	10.5	Loan Agreement between Bioanalytical Systems, Inc. and Regions Bank dated December 18, 2007 (incorporated by reference to Exhibit 10.7 of Form 10-K for the fiscal year ended September 30, 2007).
	10.6	Amended and Restated Credit Agreement by and between Bioanalytical Systems, Inc., and National City Bank, executed January 4, 2005 (incorporated by reference to Exhibit 10.5 of Form 8-K filed January 10, 2005).

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Number		Description of Exhibits
	10.7	Amended and Restated General Security Agreement by and between Bioanalytical Systems, Inc. and National City Bank executed January 4, 2005 (incorporated by reference to Exhibit 10.7 of Form 8-K filed January 10, 2005).
	10.8	Second Amendment to Amended and Restated Credit Agreement by and between Bioanalytical Systems, Inc. and National City Bank executed October 24, 2007 (incorporated by reference to Exhibit 10.3 of Form 10-Q for the first fiscal quarter ended December 31, 2007).
	10.9	Waiver letter, dated December 19, 2008, from National City Bank regarding the Second Amendment to Amended and Restated Credit Agreement by and between Bioanalytical Systems, Inc. and National City Bank (incorporated by reference to Exhibit 10.9 to Form 10-K for the fiscal year ended September 30, 2008).
	10.10	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).
	10.11	Replacement Promissory Note by and between Bioanalytical Systems, Inc. and National City Bank, executed July 17, 2009 (incorporated by reference to Exhibit 10.2 to Form 10-Q for the fiscal quarter ended June 30, 2009).
	10.12	Replacement Subsidiary Guaranty by and between Bioanalytical Systems Inc. and National City Bank, executed July 17, 2009 (incorporated by reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended June 30, 2009).
	10.13	Replacement Promissory Note by and between Bioanalytical Systems, Inc. and National City Bank, executed January 4, 2005 (incorporated by reference to Exhibit 10.6 of Form 8-K filed January 10, 2005).
	10.14	Form of Grant of non-qualified stock options dated April 1, 2004 to Michael R. Cox (*) (incorporated by reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended March 31, 2004).
	10.15	Employment Agreement by and among Bioanalytical Systems, Inc. and Richard M. Shepperd, entered into on May 18, 2007 (*) (incorporated by reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended June 30, 2007).
	10.16	Option Agreement by and among Bioanalytical Systems, Inc. and Richard M. Shepperd, entered into on May 18, 2007 (*) (incorporated by reference to Exhibit 10.2 to Form 10-Q for the fiscal quarter ended June 30, 2007).
	10.17	Agreement for Lease, by and among Bioanalytical Systems, Inc., Bioanalytical Systems Limited and Pettifer Estates Limited, dated October 11, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K filed October 17, 2007).
	10.18	Form of Lease, by and among Bioanalytical Systems, Inc., Bioanalytical Systems Limited and Pettifer Estates Limited (incorporated by reference to Exhibit 10.2 to Form 8-K filed October 17, 2007).
	10.19	Employment Agreement between Michael R. Cox and Bioanalytical Systems, Inc., dated November 6, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 13, 2007).
	10.20	Employee Incentive Stock Option Agreement between Michael R. Cox and Bioanalytical Systems, Inc., dated November 6, 2007 (incorporated by reference to Exhibit 10.2 to Form 8-K filed November 13, 2007).

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Number		Description of Exhibits
	10.21	Severance Agreement and Release of All Claims between Edward M. Chait and Bioanalytical Systems, Inc., dated November 7, 2008 (incorporated by reference to Exhibit 10.29 to Form 10-K for the fiscal year ended September 30, 2008).
	10.22	Bioanalytical Systems, Inc. 2008 Director and Employee Stock Option Plan (incorporated by reference to Appendix A to the Revised Definitive Proxy Statement filed February 5, 2008, SEC File No. 000-23357).
	10.23	Form of Bioanalytical Systems, Inc. 2008 Director and Employee Stock Option Plan (*) (incorporated by reference to Exhibit 10.31 to Form 10-K for the fiscal year ended September 30, 2008).
	10.24	Assignment and Assumption of Office Lease, dated June 30, 2008, between Bioanalytical Systems, Inc. and AP USA Algorithme Pharma USA Inc (incorporated by reference to Exhibit 10.1 of Form 8-K filed July 7, 2008).
	10.25	Employment Agreement between Jon Brewer and Bioanalytical Systems, Inc., dated October 1, 2008 (incorporated by reference to Exhibit 10.1 to Form 8-K filed September 26, 2008).
	10.26	Employment Agreement between Anthony S. Chilton and Bioanalytical Systems, Inc., dated December 1, 2008 (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 14, 2008).
	10.27	Employee Incentive Stock Option Agreement between Jon Brewer and Bioanalytical Systems, Inc., dated October 1, 2008 (incorporated by reference to Exhibit 10.35 to Form 10-K for the fiscal year ended September 30, 2008).
	10.28	Employee Incentive Stock Option Agreement between Anthony S. Chilton and Bioanalytical Systems, Inc., dated December 1, 2008 (incorporated by reference to Exhibit 10.36 to Form 10-K for the fiscal year ended September 30, 2008).
	10.29	Waiver letter, dated February 17, 2009, from Regions Bank (incorporated by reference to Exhibit 10.7 to Form 10-Q for the fiscal quarter ended December 31, 2008).
	10.30	Amendment to Employment Agreement, dated January 12, 2009, by and among Bioanalytical Systems, Inc. and Richard M. Shepperd (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 14, 2009).
	10.31	Second amendment to Loan Agreement between Bioanalytical Systems, Inc. and Regions Bank, dated May 18, 2009 (incorporated by reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended March 31, 2009).
	10.32	Fifth Amendment to Amended and Restated Credit Agreement between Bioanalytical Systems, Inc. and PNC Bank, as successor by merger to National City Bank, executed December 31, 2009 (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 7, 2010).
	10.33	Waiver letter, dated January 7, 2010, from Regions Bank (filed herewith).
	10.34	Third amendment to Loan Agreement between Bioanalytical Systems, Inc. and Regions Bank, dated January 13, 2010 (filed herewith).
	10.35	Loan and Security Agreement by and between Bioanalytical Systems, Inc., and Entrepreneur Growth Capital LLC, executed January 13, 2010 (filed herewith).
(14)	14	Code of Ethics (incorporated by reference to Exhibit 14 to Form 10-K for the fiscal year ended September 30, 2006).

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(21)	21.1	Subsidiaries of the Registrant (filed herewith).
(23)	23.1	Consent of Independent Registered Public Accounting Firm Crowe Horwath LLP (filed herewith).
(31)	31.1	Certification of Chief Executive Officer (filed herewith).
	31.2	Certification of Chief Financial Officer (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)..

*    Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)
	By:  /s/  Richard M. Shepperd
Date:   January 13, 2010	Richard M. Shepperd
	President and Chief Executive Officer
	By:  /s/  Michael R. Cox
	Michael R. Cox
Date:  January 13, 2010	Vice President, Finance and Administration, Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Capacity	Date
/s/  Richard M. Shepperd	Director, President and Chief Executive Officer (Principal Executive Officer)	January 13, 2010
Richard M. Shepperd
/s/  Michael R. Cox	Vice President, Finance and Administration, Chief Financial Officer	January 13, 2010
Michael R. Cox	and Treasurer (Principal Financial and Accounting Officer)
/s/  William E. Baitinger	Chairman	January 13, 2010
William E. Baitinger
/s/  Larry S. Boulet	Director	January 13, 2010
Larry S. Boulet
/s/  David W. Crabb	Director	January 13, 2010
David W. Crabb
/s/  Leslie B. Daniels	Director	January 13, 2010
Leslie B. Daniels
/s/  John B. Landis, Ph.D.	Director	January 13, 2010
John B. Landis, Ph.D.
/s/  David L. Omachinski	Director	January 13, 2010
David L. Omachinski

64

EX-3.2

AMENDED AND RESTATED BYLAWS OF

BIOANALYTICAL SYSTEMS, INC.

(Including Amendments through September 24, 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.

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 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.  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.

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(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.

Section  3.2.2. Classes of Directors and Terms. The directors shall be divided into three classes as nearly equal in number as possible. The directors shall be initially divided into a class alphabetically by last name. The terms of directors in the first group expire at the first annual shareholders' meeting after September 24, 2009, the terms of the second group expire at the second annual shareholders' meeting after September 24, 2009, and the terms of the third group, if any, expire at the third annual shareholders' meeting after September 24, 2009. At each annual shareholders' meeting held thereafter, directors shall be elected for a term of three (3) years to succeed those whose terms expire.  All directors elected for a term shall continue in office until the election and qualification of their respective successors, their death, their resignation, their removal in accordance with Section 3.3, or if there has been a reduction in the number of directors and no successor is to be elected, until the end of the term. The classes and terms of the directors shall be governed by Indiana Code §23-1-33-6.

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.

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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.

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.

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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.

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.

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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.

ARTICLE VI.

Amendment

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

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EX-10.33

January 7, 2010

Bioanalytical Systems, Inc.

2710 Kent Avenue

West Lafayette, Indiana 47906

Attn: Mike Cox, VP Finance and Administration

Dear Mr. Cox:

Incidental to that certain Loan Agreement entered into by and between Bioanalytical Systems, Inc. (“Borrower”) and Regions Bank (“Bank”) dated December 18, 2007 (such Loan Agreement, as amended, hereinafter referred to collectively as the “Loan Agreement”), and subject to further conditions set forth herein, Bank hereby waives Borrower’s compliance with the Fixed Service Coverage Ratio covenant as set forth in Section 8(b) of the Loan Agreement for the period ending as of December 31, 2009.

The waiver of Borrower’s compliance with the financial covenant as set forth above constitutes a singular waiver and shall not be deemed to be or to imply Bank’s waiver of Borrower’s strict compliance with the terms and provisions of the Loan Agreement.  The waiver contained herein is also subject to receipt by Bank of such additional documentation as may be required by Bank to modify the Loan Agreement and other related loan documents and to provide further security for the loans from Bank to Borrower.

The waiver granted herein shall not be deemed to create a course of conduct or obligation upon Bank to waive Borrower’s future non-compliance with any of the terms or provisions as set forth in the Loan Agreement.  No delay or omission of Bank to exercise any right or power under the Loan Agreement shall impair such right or power or be construed as a waiver of any default or as an acquiescence except as expressly set forth herein.  All waivers of Borrower’s noncompliance with the terms and provisions of the Loan Agreement shall not be valid unless in writing and signed by Bank, and then only to the extent specifically set forth in such writing.

Sincerely,
REGIONS BANK
By:
	Michael F. Zingraf, Senior Vice President

EX-10.34

Third Amendment To Loan Agreement

This Third Amendment to Loan Agreement (“Amendment”) is dated as of January 13, 2010, and is between Regions Bank, an Alabama banking corporation, as successor by merger to Union Planters Bank, N.A. (“Lender”) and Bioanalytical Systems, Inc., an Indiana corporation (“Borrower”).

Recitals

Lender, Borrower and BAS Evansville, Inc. entered into a certain Loan Agreement dated October 29, 2002, as amended by the Amendment to Loan Agreement dated June 1, 2004 (collectively, the “Prior Loan Agreement”) in connection with (i) a Promissory Note (Term Loan) executed by Borrower in favor of Lender in the amount of $5,410,000.00 dated October 29, 2002, as amended by an Amendment to Promissory Note (Term Loan) dated June 1, 2004, (ii) a Promissory Note (Loan (West Lafayette)) executed by Borrower in favor of Lender in the amount of $2,250,000.00 dated October 29, 2002, as amended by an Amendment to Promissory Note (Loan (West Lafayette)) dated June 1, 2004, and (iii) First Replacement Promissory Note (Loan (Mt. Vernon)) in the amount of $1,698,540.11 dated February 11, 2008 (collectively, the “Prior Notes”).  As security for the Prior Loan Agreement and the Prior Notes, Borrower granted to Lender a Real Estate Mortgage and Security Agreement (Fixture Filing) (West Lafayette) dated October 29, 2002, and recorded on November 19, 2002, as Instrument No. 02037358 with the Office of the Recorder of Tippecanoe County, Indiana and BAS Evansville, Inc. granted to Lender a Real Estate Mortgage and Security Agreement (Fixture Filing) (Mt. Vernon) dated October 29, 2002, and recorded on November 13, 2002, as Instrument No. 20027318 with the Office of the Recorder of Posey County, Indiana (collectively, the “Prior Mortgages”).

Lender and Borrower entered into a certain Loan Agreement dated December 18, 2007, as amended by a First Amendment to Loan Agreement dated January 3, 2008, and a Second Amendment to Loan Agreement dated May 18, 2009 (as may be further amended from time to time, collectively, the “Loan Agreement”).

The parties desire to amend the Loan Agreement (and, consequently, the Prior Loan Agreement) to modify certain covenants provided by the Loan Agreement, as herein provided.

Terms

NOW, THEREFORE, in consideration of the foregoing and the mutual obligations of the parties hereto, the Loan Agreement is hereby amended as follows:

1. Amendments to the Loan Agreement.

A.           Section 6 (Borrower’s Representations and Warranties).  Section 6 (Borrower’s Representations and Warranties) of the Loan Agreement is hereby amended by deleting the existing subsection (e) and replacing it with the following subsection (e):

e.           Title.  Marketable title in fee simple to the Real Estate is vested in Borrower, and marketable title to the other collateral given to secure payment of the Indebtedness is vested in Borrower, free and clear of any and all conflicting claims of ownership, and free from any and all mortgages, encumbrances, liens, security interests, leases, licenses, easements, and restrictions (other than the lien of current real property taxes not then due and payable, and leases to tenants, copies of which have been provided to Lender, and easements and restrictions and other matters that are described in the title insurance commitment for the Real Estate as exceptions that are acceptable to Lender in its sole discretion and do not substantially interfere with the operation of the Real Estate for its intended purpose and liens in favor of the Asset Based Lender (as defined herein)), and Borrower will defend the Real Estate and other collateral against any person (other than the Asset Based Lender) claiming an interest in such Real Estate or collateral adverse to the interest of Lender.

B.           Section 7 (Borrower’s Affirmative Covenants).  Section 7 (Borrower’s Affirmative Covenants) of the Loan Agreement is hereby amended by deleting the existing subsection (d) and replacing it with the following subsection (d):

d.           Liens.  Borrower will cause any lien (including, without limitation, any judgment, attachment, execution, mechanic’s lien, or federal or state income tax lien) that may attach to Borrower’s real estate or personal property to be satisfied and released no later than thirty (30) days after attachment, except for (i) the lien of current property taxes and assessments, (ii) liens contested in good faith in an appropriate proceeding if Borrower has given Lender any assurances Lender deems necessary under the circumstances, (iii) liens in favor of Lender, (iv) any lien in favor of Entrepreneur Growth Capital, LLC, or its successor as provider of an asset-based line of credit, (the “Asset Based Lender”) to secure indebtedness not to exceed the principal amount of $3,000,000.00, provided that any real property lien is governed by an Intercreditor Agreement by and between Lender and the Asset Based Lender, and (v) the state tax warrants in the aggregate amount of $364,240.76 plus interest, penalties and costs, recorded in 2009 on the real estate located in Tippecanoe County, Indiana, for which a liability has been reserved on the financial records of Borrower to the satisfaction of Lender.

C.           Section 8 (Borrower’s Financial Covenants).  Section 8 (Borrower’s Financial Covenants) of the Loan Agreement is hereby amended by deleting the existing subsection (b) and replacing it with the following subsection (b):

b.           Fixed Charge Coverage Ratio.  Borrower will maintain a Fixed Charge Coverage Ratio of not less than (i) 1.00 to 1.00 as of March 31, 2010, and (ii) 1.25 to 1.00 as of June 30, 2010 and each quarter thereafter.  “Fixed Charge Coverage Ratio” means the ratio of (i) the Borrower’s net income for the period, plus depreciation expense and other non cash expenditures, plus interest expense, plus income tax expense, less capital expenditures not funded with long term debt, less income tax paid or accrued in the period, to (ii) the sum of all interest payments and to the principal payments on long-term debt paid or accrued in the period, including payments made under capitalized leases.  The Fixed Charge Coverage Ratio will be tested on a rolling four quarter basis at the end of each fiscal quarter and fiscal year, beginning on March 31, 2010.

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D.           Section 9 (Negative Covenants).  Section 9 (Negative Covenants) of the Loan Agreement is hereby amended by deleting the existing subsections (c), (d) and (e) and replacing them with the following subsections (c), (d) and (e):

c.           Disposal of Property.  Borrower will not without Lender’s prior written consent, convey, sell, donate, lease, grant any easement upon, or otherwise transfer, or dispose of (or enter into any contract or agreement to convey, sell, donate, lease, grant any easement upon, or otherwise transfer or dispose of, or grant any option to purchase, lease or otherwise acquire) any of Borrower’s real or personal property, whether now owned or hereafter acquired, or enter into any sale and leaseback except for i) the sale and leaseback of personal property in an amount not to exceed $1,000,000.00 in the aggregate, and ii) leases to tenants for terms including renewal and extension options and approved in advance in writing by Lender.  Borrower may however, in the ordinary course of business,  a) convey, sell, donate, lease, grant any easement upon, or otherwise transfer, or dispose of (or enter into any contract or agreement to convey, sell, donate, lease, grant any easement upon, or otherwise transfer or dispose of, or grant any option to purchase, lease or otherwise acquire) any property normally held by Borrower for that purpose (but a sale in the ordinary course of business does not include a transfer in total or partial satisfaction of a debt), b) dispose of obsolete equipment, and c) act to preserve the rights of the Asset Based Lender with respect to enforcement of its rights under the loan documents between Asset Based Lender and Borrower.

d.           Borrowing.  Borrower will not, without Lender’s prior written consent, create, incur, assume or suffer to exist any indebtedness except (a) trade accounts and normal business accruals payable in the ordinary course of business, (b) indebtedness to Lender, and (c) an asset-based line of credit available to Borrower from the Asset Based Lender in the maximum principal amount not to exceed $3,000,000.00, nor shall Borrower assume, guarantee or otherwise become liable as a guarantor or surety for the obligations of any person or firm except guaranties in favor of Lender.

e.           Liens and Encumbrances.  Borrower will not, without Lender’s prior written consent, create or permit to exist any mortgage, pledge, lien, security interest or other encumbrance (except those in favor of Lender and except those in favor of Asset Based Lender as permitted in Section 7.d. herein) in any of Borrower’s tangible or intangible real or personal property, whether now owned or hereafter acquired, nor will Borrower become security on a recognizance or other bond.

E.           Section 9 (Negative Covenants).  Section 9 (Negative Covenants) of the Loan Agreement is hereby amended and restated to be retroactive and effective as of December 18, 2007, by deleting the existing subsection (f) and replacing it with the following subsection (f):

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f.           Organizational Changes.  Borrower will not, without Lender’s prior written consent (i) change Borrower’s name or principal place of business, (ii) change Borrower’s state of incorporation or organization, (iii) change the location of Borrower’s chief executive office, (iv) enter into any share exchange or merger with, or acquire, any person or firm or any substantial portion of such person or firm’s assets, (v) engage in any transaction with any person or firm other than in the ordinary course of Borrower’s business, or (vi) make any material change in the nature of Borrower’s business as carried on at the date of this Agreement.

F.           Section 11 (Events of Default; Acceleration).  Section 11 (Events of Default; Acceleration) of the Loan Agreement is hereby amended and restated to be retroactive and effective as of December 18, 2007, by deleting the existing subsection (k) and replacing it with the following subsection (k):

k.           All or any part of Borrower’s real property or any interest therein is transferred without Lender’s prior written consent, said consent being in Lender’s sole discretion.

2.           Continuing Effect.  All other terms, conditions, representations, warranties and covenants contained in the Loan Agreement shall remain the same and shall continue in full force and effect.  In consideration hereof, Borrower represents and warrants that each representation and warranty set forth in the Loan Agreement, as hereby amended, remains true and correct as of the date hereof, except to the extent that such representation and warranty is expressly intended to apply solely to an earlier date, that there presently exist no known offsets, counterclaims or defenses to the performance of the obligations under the Instruments (collectively, the “Obligations”) (such known offsets, counterclaims or defenses, if any, being hereby expressly waived), and that Borrower has no other known claims, demands, allegations or rights of action of any nature based on any matter arising from or related to the Obligations or Borrower’s relationship with the Lender (such known claims, demands, allegations or rights of action, if any, being hereby expressly waived) nor has there occurred any Event of Default under the Loan Agreement or any of the Instruments, and that there will be no Event of Default after giving effect to the transactions contemplated by this Amendment.  The representations and warranties contained in the Loan Agreement originally shall survive this Amendment in their original form and shall survive as continuing representations and warranties of Borrower.  Except as expressly herein provided, the Loan Agreement and this Amendment shall be interpreted, wherever possible, in a manner consistent with one another, but in the event of any irreconcilable inconsistency, this Amendment shall control.  The parties each hereby agree to cooperate in all reasonable requests of each other party hereto, including, without limitation, the authentication of financing statements and other documents, which the requesting party deems reasonable, necessary, appropriate or expedient to carry out the intents and purposes of this Amendment.  Capitalized terms used herein and not specifically herein defined shall have the meanings ascribed in the Loan Agreement.

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It was Lender’s intent that the Loan Agreement should replace the Prior Loan Agreement and, in good faith, Lender has been monitoring and administering the Obligations and the Prior Notes with the covenants contained in the Loan Agreement.  By execution of this Amendment, Borrower and Lender agree that (i) the Prior Loan Agreement, (ii) the Prior Notes, (iii) the Prior Mortgages, (iv) a First Replacement Promissory Note (Term Loan) executed by Borrower in favor of Lender in the amount of $1,400,000.00 dated January 3, 2008, (v) a Real Estate Mortgage and Security Agreement (Fixture Filing) granted by Borrower to Lender dated December 18, 2007, and recorded January 10, 2008, as Instrument No. 200808000629 with the Office of the Recorder of Tippecanoe County, Indiana, and (vi) a Real Estate Mortgage and Security Agreement (Fixture Filing) granted by Borrower to Lender dated December 18, 2007, and recorded February 19, 2008, as Instrument No. 200800695 with the office of the Recorder of Posey County, Indiana, and all documents and instruments executed in connection therewith, shall be monitored and administered in accordance with the Loan Agreement, and in the event of any irreconcilable inconsistency between the Prior Loan Agreement and the Loan Agreement, the Loan Agreement shall control.

3.           Conditions Precedent.  Notwithstanding anything contained in this Amendment to the contrary, the Lender shall have no obligation under this Amendment until each of the following conditions precedent have been fulfilled to the satisfaction of the Lender:

(a)           The Lender shall have received each of the following, in form and substance satisfactory to the Lender:

(1)           This Amendment and such other instruments, documents and opinions as the Lender shall reasonably require, all duly executed by the parties thereto in the forms approved by the Lender;

(2)           A duly executed certificate of an authorized officer of Borrower (A) certifying as to attached copies of resolutions of the Board of Directors of Borrower authorizing the execution, delivery and performance of this Amendment, the Loan Agreement, the Instruments, as amended, and any other documents provided for in this Amendment to which Borrower is a party or certifying that prior resolutions executed and delivered to the Lender are in full force and effect, and (B) certifying as complete and correct as to attached copies of the Articles of Incorporation and Bylaws of Borrower or certifying that such Articles of Incorporation and Bylaws have not been amended (except as shown) since the previous delivery thereof to the Lender;

(3)           An Unconditional Unlimited Continuing Guaranty in the form provided by the Lender, duly executed by BAS Evansville, Inc. in favor of the Lender (the “Guarantor”);

(4)           A duly executed certificate of an authorized officer of Guarantor (A) certifying as to attached copies of resolutions of the Board of Directors of Guarantor authorizing the execution, delivery and performance of the Guaranty and (B) certifying as complete and correct as to attached copies of the Articles of Incorporation and Bylaws of Borrower;

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(5)           Payment of a modification fee in the amount of $5,000.00, which fee the Borrower acknowledges was earned upon execution of this Amendment and is due and payable and non-refundable;

(6)           All reasonable expenses of the Lender (including, without limitation, reasonable attorneys’ fees), shall have been reimbursed by Borrower.

(b)           All legal matters incident to this Amendment shall be reasonably satisfactory to the Lender and its counsel.

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4.           Counterparts.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.  Facsimile signatures will be deemed acceptable and binding.

The parties are signing this Amendment on the date stated in the introductory paragraph.

LENDER:
	REGIONS BANK
	By:
		Michael F. Zingraf, Senior Vice President

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BORROWER:

BIOANALYTICAL SYSTEMS, INC.

By:

Printed

Title

STATE OF INDIANA	)
	)	SS:
TIPPECANOE COUNTY	)

Before me, the undersigned Notary Public, personally appeared __________________ the _____________________________ of Bioanalytical Systems, Inc., an Indiana corporation, who on behalf of Bioanalytical Systems, Inc. acknowledged the execution of the foregoing instrument and swore to the truth of the statements made therein.

Witness my hand and Notarial Seal this _____ day of __________, 2010.

SEAL

Notary Public Signature

Printed Name

My Commission Expires:

County of Residence:

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EX-10.35

LOAN AND SECURITY AGREEMENT

BETWEEN

ENTREPRENEUR GROWTH CAPITAL LLC

505 Park Avenue

New York, New York 10022

AND

BIOANALYTICAL SYSTEMS, INC.

2701 Kent Avenue

West Lafayette, IN 47906

This LOAN AND SECURITY AGREEMENT (“Agreement”) dated January 13, 2010 between BIOANALYTICAL SYSTEMS INC., a Indiana corporation having its principal place of business at 2701 Kent Avenue, West Lafayette, IN  47906 ("Borrower") and ENTREPRENEUR GROWTH CAPITAL, LLC, a Delaware limited liability company, having a principal office at 505 Park Avenue, 6th Floor, New York, NY 10022 (hereinafter called "Lender").  This Agreement sets forth the terms and conditions upon which Lender may, in its reasonable business discretion, make loans, advances and other financial accommodations to or for the benefit of Borrower upon the security referred to herein.

SECTION 1.         DEFINED TERMS

1.1.           All capitalized terms used in this Agreement are defined either in this Agreement, in the attached loan schedule (“Loan Schedule”), or in any supplement to this Agreement or Loan Schedule.  All terms used herein which are defined in Article 1 or Article 9 of the Uniform Commercial Code (the "UCC") shall have the same meaning as presently or as may hereafter be given therein unless otherwise defined in this Agreement.  All references to the plural shall also mean the singular.

1.2.           "Account" or "Accounts" shall have the same meaning as contained in Article 9 of the UCC and shall also include contract rights and general intangibles related to Accounts, payment intangibles, instruments, and all proceeds thereof including, but not limited to, the proceeds of any insurance thereon whether or not specifically assigned to Lender.

1.3.           "Account Debtor" shall have the same meaning as contained in Article 9 of the UCC and shall also include each debtor or obligor in any way obligated on or in connection with any Account.

1.4.           “Closing Date” means the date of the initial advance made by Lender pursuant to this Agreement.

1.5.           "Collateral" shall have the meaning set forth in Section 3.1 of this Agreement.

1.6.           "Collateral Monitoring Fee" shall have the meaning set forth in the Loan Schedule.

1.7.           "Costs and Expenses" shall include, but not be limited to commissions, fees, appraisal fees, taxes, title insurance premiums, internal and external field examination expenses for routine and non-routine audits and field examinations, filing, recording and search expenses, reasonable internal and external attorney's fees and disbursements (as may be incurred with respect to the effectuation of this Agreement or any claim of any nature or litigation whatsoever arising out of or as a result of the interpretation of this Agreement or the financing provided for hereunder, including, but not limited to, all fees and expenses for the service and filing of papers, premiums on bonds and undertakings, fees of marshals, sheriffs, custodians, auctioneers and others, travel expenses and all court costs and collection charges), postage, wire transfer fees, check dishonor fees and other internal and/or external fees, costs and expenses arising out of or relating to the negotiations, preparation, consummation, administration and enforcement of this Agreement or any other agreement between Borrower and Lender including, but not limited to any guaranty of the Obligations (as defined herein).

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1.8            "Eligible Accounts" means Accounts arising in the ordinary course of Borrower's business from the sale of goods or rendition of services, which Lender, in its reasonable business discretion, shall deem eligible based on such considerations as Lender may from time to time deem appropriate.  Without limiting the foregoing, an Account shall not be deemed to be an Eligible Account if (i) the Account Debtor has failed to pay the Account within a period of ninety (90) days after invoice date; (ii) the account debtor has failed to pay more than 25% of all outstanding Accounts owed by it to Borrower within ninety (90) days after invoice date; (iii) the Account Debtor's total obligations to Borrower exceed 15% of all Eligible Accounts, to the extent of such excess; (iv) the Account Debtor is a subsidiary or affiliate of Borrower; (v) the goods relating thereto are placed on consignment, guaranteed sale, “bill and hold,” “COD” or other terms pursuant to which payment by the Account Debtor may be conditional; (vi) the Account Debtor is not located in the United States unless the Account is supported by a letter of credit or other form of guaranty or security, in each case in form and substance satisfactory to Lender; (vii) the Account Debtor is the United States or any department, agency or instrumentality thereof or any State, city or municipality of the United States, except as otherwise agreed to in writing by Lender; (viii) Borrower is or may become liable to the account debtor for goods sold or services rendered by the account debtor to Borrower; (ix) the Account Debtor disputes liability or makes any claim with respect thereto, or is subject to any insolvency or bankruptcy proceeding, or becomes insolvent, fails or goes out of a material portion of its business; (x) the amount thereof consists of late charges or finance charges; (xi) the amount thereof consists of a credit balance more than ninety (90) days past due; (xii) the invoice constitutes a progress billing on a project not yet completed in a manner inconsistent with Borrower’s ordinary course practices, except that the final billing at such time as the matter has been completed and delivered to the customer may be deemed an Eligible Account; (xiii) the amount thereof is not yet represented by an invoice or bill issued in the name of the applicable Account Debtor; (xiv) the amount thereof is denominated in or payable with any currency other than U.S. Dollars; or (xv) such Account is not at all times subject to Lender’s duly perfected first priority security interest.  In determining eligibility, Lender may, but need not, rely on agings, reports and schedules of Accounts furnished by Borrower but reliance by Lender thereon from time to time shall not be deemed to limit its right to revise standards of eligibility at any time without notice as to both Borrower's present and future Accounts.

1.9.           "Facility Fee" shall have the meaning set forth in the Loan Schedule.

1.10.         "Line of Credit" as used herein is $3,000,000.00.

1.11.         "Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower and payable to Lender, the patent and/or trademark and/or copywrite security agreement(s), and any other present or future agreement entered into in connection with this Agreement, together with all alterations, amendments, changes, extensions, modifications, refinancings, refundings, renewals, replacements, restatements, or supplements, of or to any of the foregoing.

1.12.         “Loan Party” "means Borrower, each guarantor and each other party (other than Lender) to any Loan Document.

1.13.         "Material Adverse Change" shall mean, when used in connection with the Borrower, any event, state of facts, circumstance, change, development, action or omission or effect (any such item, an "Change") that, individually or in the aggregate, has been or could reasonably be expected to be materially adverse to the business, operations, properties, assets, liabilities, condition (financial or otherwise), other than any Change resulting from (A) the economy, political conditions or the financial markets in general (including any changes resulting from terrorist activities, war or other armed hostilities to the extent that such Change does not disproportionately affect the Borrower, taken as a whole, in relation to other companies in the industry in which the Borrower operates), (B) general changes in the industries in which the Borrower operate to the extent that such Change does not disproportionately affect the Borrower, taken as a whole, in relation to other companies in the industry in which the Borrower operates, (C) changes in law, GAAP or in any interpretation thereof, or (D) changes in foreign currency exchange rates.

1.14.         "Material Agreement" shall mean any material contract, agreement or other arrangement that is required to be filed by the Borrower as an exhibit to a report with the Securities and Exchange Commission.

1.15          "Minimum Interest Charge" shall have the meaning set forth in the Loan Schedule.

1.16.         "Net Amount of Eligible Accounts" shall mean the gross amount of Eligible Accounts less sales, excise or similar taxes, and less returns, discounts, claims, credits, reasonable reserves consistent with past practices (as determined by Lender in its reasonable business discretion) and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed.

1.17.         "Obligations" shall mean any and all loans, advances, accommodations, indebtedness, liabilities, Costs and Expenses and all obligations of every kind and nature owing by Borrower to Lender under this Agreement or any supplement to hereto, however evidenced, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, original, renewed, modified or extended, and including, without limitation, all sums chargeable to Borrower hereunder or under any of the other Loan Documents, of whatever nature, including commissions, interest, expenses, costs and attorneys' fees.  .

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1.18.         "Person" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, government, or any agency or political division thereof, or any other entity.

SECTION 2.         LOANS AND ADVANCES; INTEREST RATE AND OTHER CHARGES

2.1.           Loans.  Whenever the Borrower makes a request (but not more frequently than twice a week unless Lender consents), Lender shall make loans, advances and/or extend credit to or for the Borrower; but Lender shall not be obligated to make loans, advances and/or extend credit beyond the Line of Credit set forth in the Loan Schedule and subject to deduction of any reasonable loan reserves (“Loan Reserves”) Lender deems proper from time to time in its reasonable business discretion consistent with past practices, and less amounts Lender may be obligated to pay in the future on behalf of Borrower.  Advances under the Line of Credit (“Loans” and individually, a “Loan”) shall be comprised of the amounts shown on the Loan Schedule.

2.2            Interest and Fees.  The Borrower shall pay Lender the interest and fees set forth on the Loan Schedule, but only to the maximum extent permitted by applicable law.  Borrower shall pay principal, interest, and all other amounts payable hereunder, or under any other Loan Document, without any deduction whatsoever, including, but not limited to, any deduction for any setoff or counterclaim.  In no event shall the Revolving Interest Rate or the Default Rate of Interest exceed the highest rate permitted under any applicable law or regulation.  If any part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto, and any payment of interest and fees which individually or collectively might be deemed to be in excess of the highest rate permitted by law shall be credited against Borrower's Obligations as principal repayments of loans and advances made hereunder, to the extent of such excess.

2.3            Overlines; Overadvances.  If at any time or for any reason the outstanding amount of advances extended or issued pursuant hereto exceeds any of the dollar limitations (“Overline”) or percentage limitations (“Overadvance”) in the Loan Schedule on any day in any month, then Borrower shall, upon Lender's demand, immediately pay to Lender, in cash, the full amount of such Overline or Overadvance which shall be applied to reduce the outstanding principal balance of the Loans or any other Obligations.  Without limiting Borrower's obligation to repay to Lender on demand the amount of any Overline or Overadvance, Borrower agrees to pay Lender interest on the outstanding principal amount of any Overline or Overadvance, on demand, at the rate set forth on the Loan Schedule, whether any such Overline or Overadvance is made with or without Lender's knowledge or consent.

2.4.           (a)           Establishment of a Lockbox Account or Dominion Account.  Except as otherwise provided in Section 2.4(b), Borrower shall cause all proceeds of Collateral to be remitted directly to Lender by instructing its Account Debtors to direct their payments as follows:

Name of Borrower

Accounting Department

505 Park Avenue, 6th Floor

New York, NY 10022

   (b)           Lender may, at any time and from time to time, direct Borrower to collect and deliver to Lender in their original form, on the same date as the date of the actual receipt thereof, all checks, drafts, notes, acceptances, cash, wire transfers and any other evidences of payment, and/or direct Borrower to cause all proceeds of Collateral to be deposited into a lock box account or other blocked account as Lender may require or take any other action Lender may require.  Without limiting any rights of Lender to require Borrower to cause proceeds of Collateral to be delivered to the address set forth in Section 2.4(a) above, upon the execution of a control agreement on terms and conditions satisfactory to Lender with Borrower’s lockbox bank, Lender agrees that Borrower may, pursuant to this Section 2.4(b), cause all proceeds of Collateral to be deposited into a lockbox account or other blocked account upon which Lender shall have control (and Borrower shall not have access to) pursuant to said control agreement.

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                2.5.          Clearance or Float Days.  In computing interest on the Obligations, all checks, wire transfers and other items of payment received by Lender (including proceeds of Accounts and payment of the Obligations in full) shall be deemed applied by Lender on account of the Obligations on the day such payment is received or, if received after 12:00 noon New York, NY time, the next business day.  However, Lender shall be entitled to charge Borrower’s account five (5) business days of “clearance” or “float” at the Revolving Interest Rate set forth in the Loan Schedule, on all checks, wire transfers and other items received by Lender, regardless of whether such five (5) business days of clearance or float actually occur, and such charge shall be deemed to be the equivalent of charging five (5) business days of interest on such payments and/or collections.  The five (5) business days clearance or float charge on all payments and collections is acknowledged by the parties to constitute an integral aspect of the pricing of Lender’s financing to Borrower.  Lender shall not, however, be required to credit Borrower’s account for the amount of any item of payment which is unsatisfactory to Lender, in Lenders reasonable business discretion, and Lender may charge Borrower’s loan account for the amount of any item of payment which is returned to Lender unpaid until Lender confirms collection or clearance of such item of payment, and Lender may, in either case, charge Borrower’s loan account for the amount of any item of payment which is returned to Lender unpaid.

2.6.           Application of Collateral and Payments.  Except as otherwise provided herein, Lender shall have the continuing and exclusive right to apply or reverse and re-apply any and all payments to any portion of the Obligations in such order and manner as Lender shall determine in its reasonable business discretion.  To the extent that Borrower makes a payment or Lender receives any payment or proceeds of the Collateral for Borrower’s benefit that is subsequently invalidated, set aside or required to be repaid to any other Person, then, to such extent, the Obligations intended to be satisfied shall be revived and continue as if such payment or proceeds had not been received by Lender and Lender may appropriately adjust the Loan balances, in its reasonable business discretion.

2.7.           Monthly Accountings.  All Obligations shall be charged to an account in the Borrower's name as maintained on Lender's books.  Lender shall render to Borrower a monthly statement of its account which statement shall be deemed correct, accepted by, and conclusively binding upon Borrower as an account stated, except to the extent that Borrower shall deliver to Lender written notice of any specific exceptions thereto within twenty (20) days after the date such statement is rendered.

2.8.           Charges to Borrower’s Account.  All principal, interest, fees (including Documentation Fees), commissions, charges, Costs and Expenses incurred with or in respect of this Agreement, the other Loan Documents or any supplement or amendment hereto or thereto (all of which shall be cumulative and not exclusive) and any and all Obligations shall be charged to Borrower's account as maintained by Lender.  In furtherance thereof, Borrower hereby authorizes Lender to charge the Borrower's loan account on the first day of each month or as Lender otherwise determines: (a) all Costs and Expenses; (b) all interest; and (c) all fees and other charges provided in this Agreement and the other Loan Documents.

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SECTION 3.          GRANTING PROVISIONS; SECURITY INTEREST

3.1            Grant of Security.  As security for the prompt performance, observance and payment in full of all Obligations, Borrower hereby pledges, assigns, transfers and grants to Lender a first priority security interest in, and continuing lien upon, and right of setoff against, all of the personal property assets of every kind and nature of Borrower, in each case, whether now owned or existing or hereafter created, acquired or arising and wherever located, all of which are herein collectively referred to as the "Collateral" including but not limited to, the following assets as defined under the UCC: (a) Accounts, contract rights and the proceeds thereof;  (b) Chattel Paper, including Electronic Chattel Paper and tangible Chattel Paper;  (c) Collateral;  (d) Commercial Tort Claims;  (e) Deposit Accounts;  (f) Documents;  (g) subject to the liens of the Equipment Lender as described in Section 4.1(a), Equipment, machinery, furniture, furnishings and fixtures and all parts, tools, accessories and Accessions;  (h) Fixtures;  (i) General Intangibles, including but not limited to patents, trademarks and tradenames and the goodwill and inherent value associated therewith, tax refunds, customer lists, insurance claims and goodwill of Borrower;  (j) Goods;  (k) Health Care Insurance Receivables;  (l) Instruments;  (m) Inventory, merchandise, materials, whether raw, work in progress or finished goods, packaging and shipping materials and all other tangible property held for sale or lease;  (n) Investment Property;  (o) Letter of Credit Rights;  (p) Payment Intangibles; (q) Proceeds, including Cash Proceeds and Non-Cash Proceeds, and proceeds of any insurance policies covering any of the Collateral;  (r) Promissory Notes;  (s) Records, including all books, records and other property at any time evidencing or relating to any of the foregoing, and all electronic means of storing such Records;  (t) to the extent not otherwise included above, all collateral support and Supporting Obligations relating to any of the foregoing; and  (u) to the extent not otherwise included above, all Proceeds, products, accessions, rents and profits of or in respect of any of the foregoing; provided however that Lender shall not be granted a lien and security interest in shares representing 35% of the outstanding shares of each of Borrower's non-US subsidiaries.  The security interests granted herein shall remain effective whether or not the Collateral covered thereby is acceptable to Lender or deemed by Lender to be ineligible for the purposes of any Loans or advances contemplated under this Agreement.

3.2.           In addition to the foregoing, the Obligations of Borrower shall be secured by, and the following shall be deemed to be part of the Collateral: (i) specific liens on and assignments of Borrower’s intellectual property, to be evidenced by appropriate security agreements and recorded in the United States Patent and Trademark Office; (ii) a mortgage evidenced by a real estate mortgage security agreement or other similar instrument in form and substance reasonably acceptable to Lender, to be recorded on Borrower’s real property located in West Lafayette, Indiana, subordinate in right only to that certain real estate mortgage recorded by Regions Bank (f/k/a Union Planters Bank, N.A.); (iii) the corporate guaranty executed by BAS Evansville, Inc. guaranteeing the Obligations of Borrower to Lender and secured by a mortgage evidenced by a real estate mortgage security agreement or other similar instrument in form and substance reasonably acceptable to Lender, to be recorded on Borrower’s real property located in Mt. Vernon, Indiana, subordinate in right only to that certain real estate mortgage recorded by Regions Bank (f/k/a Union Planters Bank, N.A.), and (iv)  such other collateral as may be hereafter deposited with and/or or pledged by Borrower and/or any Loan Party, including the guarantors, to Lender.

3.3.           Authorization to File Financing Statements.  Borrower hereby authorizes Lender to execute and/or file UCC financing statements (including amendments) in order to perfect the security interests granted to Lender under this Agreement, the other Loan Documents or otherwise, as well as record assignments of Borrower’s intellectual property in the United States Patent and Trademark Office.

3.4.           Assignment of Accounts and Other Collateral.  Borrower shall collaterally assign and deliver to Lender a duplicate and/or original invoice, and all original documents evidencing the delivery of goods or the performance of services with regard to each Account, including but not limited to all original contracts, purchase orders, invoices, time sheets, bills of lading, warehouse receipts, delivery tickets and shipping receipts, together with schedules describing the Accounts and/or written confirmatory assignments to Lender of each Account, in form and substance satisfactory to Lender and duly executed by Borrower, together with such other information as Lender may request.  In no event shall the making (or the failure to make) of any schedule or assignment or the content of any schedule or assignment or Borrower's failure to comply with the provisions hereof be deemed or construed as a waiver, limitation or modification of Lender's security interest in, lien upon and assignment of the Collateral or Borrower's representations, warranties or covenants under this Agreement or any supplement or amendment hereto.

SECTION 4.         REPRESENTATIONS, WARRANTIES AND COVENANTS

Borrower hereby represents, warrants and covenants to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which, and continuing compliance with, being a continuing condition of the making of all loans and advances hereunder by Lender or under any supplement or amendment hereto:

Page 5 of 16

4.1.           Owner of Collateral; Validity of Accounts.

(a)            Borrower is and shall be the owner of or has other rights in the Collateral free and clear of all liens, security interests, claims and encumbrances of every kind and nature, except in Lender's favor or as otherwise consented to in writing by Lender, and Borrower shall indemnify and defend Lender from and against all cost, loss and expense with regard to the same.  None of Borrower's Accounts has been previously sold or assigned to any Person and will not be sold or assigned, other than to Lender, at any time during the term of this Agreement without first obtaining Lender's consent in writing.  Borrower shall not execute any security agreement in favor of any other party or borrow against the security of any corporate asset, including but not limited to the Collateral, or authorize any Person other than Lender to file UCC financing statements naming Borrower as Debtor, without first obtaining Lender's consent in writing; provided, however, that Lender hereby acknowledges, agrees and consents (i) that Borrower may borrow up to $1 million against its machinery and equipment and grant a lien and security interest to the lender thereof (the “Equipment Lender”) against Collateral consisting of Borrower’s machinery and equipment, and (ii) that such lien and security interest in such machinery and equipment Collateral shall be subject to the terms and conditions set forth in a certain Lien Subordination Agreement entered into (or to be entered into) by and between Lender and the Equipment Lender, in form and substance acceptable to Lender; provided, further, that Lender shall have no obligation to subordinate its lien in machinery and equipment Collateral if, at the time of such request, (i) an Event of Default shall have occurred and be continuing, (ii) Borrower is in breach of a covenant, term or condition of this Agreement, whether or not Lender elects to call a default, or (iii) if Borrower is in an Overadvance or Overline.

(b)            Each Account represents a valid and legally enforceable indebtedness based upon a bona fide sale and delivery of goods or rendition of services usually dealt in by Borrower in the ordinary course of its business.  Each Account is and will be for a liquidated amount maturing as stated in the invoice rendered to the Account Debtor who is unconditionally liable to make payment of the amount stated in each invoice, document or instrument evidencing the Account in accordance with the terms thereof, without offset, defense, deduction, counterclaim, discount or condition, except ordinary course discounts or deductions consistent with Borrower’s past practices, all of which Borrower shall promptly notify Lender.  If any Account is not paid in full within the eligibility parameters set forth in Section 1.8 above or as otherwise determined by Lender in Lender’s reasonable business discretion (i.e., Lender is notified of a dispute of deduction of the Account otherwise becomes ineligible), the amount of such unpaid Account (whether in whole or in part) may be charged against and deducted from any advance then or thereafter made by Lender to Borrower or, in the event Borrower then has no borrowing availability, Borrower shall pay Lender, upon demand, the full amount remaining unpaid thereon.  Such payment or deduction shall not constitute a reassignment, and Lender may retain the Account as collateral for all Obligations of Borrower to Lender until the same have been fully satisfied.

(c)            All statements made and all unpaid balances appearing in the invoices, documents and instruments evidencing each Account are true and correct and are in all respects what they purport to be and to Borrower's knowledge all signatures and endorsements that appear thereon are genuine and all signatories and endorsers have full capacity to contract.  To Borrower’s knowledge, each Account Debtor is solvent and financially able to pay in full each Account.  None of the transactions underlying or giving rise to any Account shall violate any state or federal laws or regulations, and all documents relating to the Accounts shall be legally sufficient under such laws or regulations and shall be legally enforceable in accordance with their terms and all recording, filing and other requirements of giving public notice under any applicable law have been and shall be duly complied with.

(d)            Without first obtaining Lender's consent in writing (which consent shall not be unreasonably withheld) Borrower will not directly or indirectly sell, lease, transfer, abandon or otherwise dispose of all or any material portion of the Collateral (except in the ordinary course of business) or consolidate or merge with or into any other entity or permit any other entity to consolidate or merge with or into Borrower.

4.2.           Corporate Authority.

(a)            The execution, delivery and performance of this Agreement, any supplement or amendment hereto, or any agreements, instruments and documents executed and delivered in connection herewith, are within Borrower's corporate powers, have been duly authorized, are not in contravention of law or the terms of Borrower's charter, by-laws or other incorporation papers, or of any indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound.

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(b)            The Loan Schedule annexed hereto and incorporated herein by reference sets forth the Borrower's exact legal name, the Borrower's type of organization, the jurisdiction in which Borrower was organized, the Borrower's organizational identification number or accurately states that the Borrower has none, the Borrower's place of business or if more than one, its chief executive office as well as all other locations including the Borrower's mailing address if different, the address of every location or place of business previously maintained by the Borrower during the past five years and the location at which, or Person with which, any of the Collateral has been previously held at any time during the past twelve months;

(c)            Borrower is in good standing as a corporation or other legal entity, validly existing under the laws of its state of incorporation or organization, and will preserve, renew and keep in full force and effect Borrower's existence and good standing as a corporation or other legal entity and its rights and franchises with respect thereto and will not change its state of incorporation or organization;

(d)            Borrower shall obtain and preserve, renew and keep in full force and effect Borrower's authority to do business in all jurisdictions where the Borrower now or hereafter does business;

(e)            Borrower will continue to engage in a business of the same type as Borrower is engaged as of the date hereof;

(f)            Borrower will give Lender thirty (30) days prior written notice of any proposed change in Borrower's legal  name which notice shall set forth the new name; and

(g)            Borrower will give Lender thirty (30) days prior written notice of any use of any corporate name or tradename in addition to those names set forth on the annexed Loan Schedule.

4.3.           Chief Executive Office.  Borrower's Records and principal executive office are maintained at the address referred to herein and Borrower shall furnish Lender reasonably prompt written notice of any change to such location.

4.4.           Books, Records, Financial Statements.

(a)            Borrower shall maintain its shipping forms, invoices and other related documents in a form satisfactory to Lender and shall maintain its books, records and accounts in accordance with generally accepted accounting principles consistently applied.  Borrower agrees to promptly furnish Lender monthly but in no event later than ten (10) days after the end of each month, accounts receivable agings, together with reconciliation and recap sheets, accounts payable agings and inventory reports (if requested by Lender).

(b)            Borrower shall furnish to Lender, as soon as available, but in any event not later than ninety days (90) after the close of each fiscal year, Borrower’s audited financial statements for such fiscal year (including balance sheets, statements of income and loss, statements of cash flow and statements of shareholders' equity), and the accompanying notes thereto, setting forth in each case, in comparative form, figures for the previous fiscal year, all in reasonable detail, fairly representing in all material respects the financial position and the results of Borrower’s operations as at the date thereof and for the fiscal year then ended and prepared in accordance with generally accepted accounting principles consistently applied.  Such reviewed statements shall be examined in accordance with generally accepted auditing practices and certified by independent certified public accountants selected by Borrower and acceptable to Lender.

(c)           Borrower shall also furnish to Lender, as Lender may reasonably request, quarterly (or monthly if reasonably requested) unaudited financial statements (including balance sheets, statements of income and loss, statements of cash flows and statements of shareholders' equity) and the accompanying notes thereto, all in reasonable detail, fairly presenting  in all material respects the financial position and results of Borrower’s operation as at the date thereof and for such period prepared in accordance with generally accepted accounting principles consistently applied and such other information with respect to Borrower’s business, operations and condition (financial and otherwise) as Lender may from time to time reasonably request. Such financial statements shall be certified for accuracy by Borrower’s chief financial officer.

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(d)            Provided such information may be freely disseminated without violating any laws, statutes or regulations applicable to publicly traded entities, Borrower hereby irrevocably authorizes and directs all accountants, auditors and any other third parties to deliver to Lender, at Borrower's expense, copies of Borrower's financial statements, papers related thereto, and other accounting records of any kind or nature in their possession and to disclose to Lender any information they may have regarding Borrower's business affairs and financial condition; provided, however that Borrower shall not  have any liability to Lender for any failure by its accountants, auditors or other third parties to comply with such direction and any such failure shall not constitute an Event of Default hereunder.

4.5.           Further Information.  Lender shall have the right to request and receive from the Borrower's agents, employees, attorneys and accountants all information pertaining to the Borrower which Lender may reasonably request, and such persons are hereby authorized and directed by the Borrower to furnish such information, subject to applicable laws, statutes and regulations regarding publicly traded entities and privileged communications; provided, however that Borrower shall not  have any liability to Lender for any failure by its accountants, auditors or other third parties to comply with such direction and any such failure shall not constitute an Event of Default hereunder.

4.6.            Solvency; Taxes.

(a)             Borrower is solvent and will so remain.

(b)            Borrower's federal, state and local taxes of every kind and nature, including, but not limited to employment taxes, are current, and except as otherwise disclosed to Lender and/or disclosed in Borrower’s public filings, there are no pending tax audits or examinations with respect to Borrower's federal, state or local tax returns.

(c)            Borrower shall duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets prior to the date on which penalties attach thereto.  Borrower shall be liable for all taxes and penalties imposed upon any transaction under this Agreement or any supplement or amendment hereto or giving rise to the Accounts or any other Collateral or which Lender may be required to withhold or pay on behalf of Borrower for any reason.  Borrower agrees to repay to Lender on demand the amount thereof, and until paid by Borrower such amounts shall be added to and included in Borrower's Obligations.

4.7.           Litigation.  There is no investigation by any state, federal or local agency pending or threatened against Borrower and there is no action, suit, proceeding or claim pending or threatened against Borrower or Borrower's assets or goodwill or affecting any transactions contemplated by this Agreement, or any supplement or amendment hereto, or any agreements, instruments or documents delivered in connection herewith or therewith before any court, arbitrator, or governmental or administrative body or agency which if adversely determined with respect to Borrower would result in any material adverse change in Borrower's business, properties, assets, goodwill or condition, financial or otherwise.

4.8.           Sales, Accounting and Assignment.  Borrower shall keep and maintain, at its sole cost and expense, satisfactory and complete Records including records of all Accounts, all payments received and credits granted thereon, and all other dealings therewith.  Borrower shall make appropriate entries in its books and records disclosing Lender's security interest in such Accounts and each Account created by Borrower shall be deemed collaterally assigned to Lender.

4.9.           Collections.  In the event payments of Accounts or other monies or property in which Lender has an interest are delivered to or received by Borrower, including proceeds from the sale of Collateral in the ordinary course of Borrower’s business, unless otherwise consented to in writing by Lender or specifically permitted under Section 2.4 herein, Borrower shall hold all such remittances and proceeds of Accounts and other Collateral, in trust for Lender.  Borrower shall deliver all such payments to the lockbox account or blocked account referred to in Section 2.4(b), in kind with an appropriate endorsement, on the next business day following the date of receipt by Borrower.

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4.10.         Further Acts.  Borrower shall, at Borrower's expense, duly execute and deliver, or shall cause to be duly executed and delivered, such further agreements, instruments and documents, including, without limitation, additional security agreements, collateral assignments, UCC financing statements or amendments and continuations thereof, landlord's or mortgagee's waivers of liens and consents to the exercise by Lender of all of its rights and remedies hereunder, under any supplement or amendment hereto, or applicable law with respect to the Collateral.  In addition, Borrower shall do or cause to be done such further acts as may be necessary or proper, in Lender's opinion, to evidence, perfect, maintain and enforce its security interest and the priority thereof in and to the Collateral and to otherwise effect the provisions and purposes of this Agreement or any supplement or amendment hereto.  Borrower hereby authorizes Lender to execute and file UCC financing statements in order to perfect the security interests granted to Lender under this Agreement, including amendments and modification statements deemed reasonably necessary by Lender to perfect and protect Lender’s interest in the Collateral.

4.11.         Insurance.  Borrower shall, at Borrower's expense, maintain insurance covering the Collateral in such amounts and with such insurance companies as may be acceptable to Lender in its reasonable business discretion.  Borrower shall have Lender named as loss payee and additional insured on all such insurance policies.  In the event Borrower shall fail to maintain insurance acceptable to Lender, Lender without notice, may obtain such insurance in the name of the  Borrower and charge Borrower's account with the costs and expenses of such insurance. All expenses incurred by Lender with regard to such insurance policies shall be deemed part of the Obligations.

4.12.         Margin Stock.  The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation G issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan or advances made by Lender to Borrower will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock, or in any manner which might cause such loan or advance or the application of such proceeds to violate (or require any regulatory filing under) Regulation G, Regulation U, or Regulation X of the Board of Governors of the Federal Reserve System, in each case as in effect on the date or dates of such loan or advance and such use of proceeds.  Further, no proceeds of any loan or advance will be used to acquire any security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934.

4.13.         Loan Proceeds for Ordinary Business Use Only.  Any loan at any time received by the Borrower from Lender shall not be used directly or indirectly other than in the Borrower's business; it shall not, directly or indirectly, pay any dividend on its stock other than a dividend payable in shares of its own stock; it shall not, directly or indirectly, make any loan to, or pay any claim other than for current remuneration or current reimbursable expense payable to any person controlling, controlled by or under common control with the Borrower, and it shall, on demand, obtain and deliver to Lender subordinations in form and substance satisfactory to Lender of all claims of controlling and controlled persons consistent with the foregoing.

4.14.         Commercial Tort Claim.  The Borrower shall immediately notify Lender in a writing signed by the Borrower of any commercial tort claims it holds or acquires such writing shall set forth the details and grant Lender a security interest in and to any commercial tort claims it holds or acquires and in the proceeds thereof, such writing to be satisfactory to Lender in form and substance.

4.15.         Net Worth Covenant.  Borrower shall have a minimum tangible net worth (total assets minus intangible assets minus total liabilities, all as defined in accordance with generally accepted accounting principles in effect in the United States from time to time) of not less than $9,500,000.

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SECTION 5.         ADDITIONAL POWERS; ENFORCEMENT OF RIGHTS IN AND TO COLLATERAL

5.1.           Power of Attorney.  Borrower appoints Lender and Lender’s designees as Borrower's attorney and attorney-in-fact, at Borrower’s sole cost and expense, and Lender may exercise at any time (unless otherwise specified below), in Lender’s reasonable business discretion, all or any of the following powers which, being coupled with an interest, shall be irrevocable until all Obligations have been paid in full and Lender’s obligation to provide loans hereunder shall have terminated:

(a)            endorse Borrower's name on any checks, notes, acceptances, money orders or other forms of payment or security that come into Lender’s possession;

(b)            sign Borrower's name on any invoice or bill of lading relating to any Account, on drafts against Account Debtors, on assignments of Accounts, on notices of assignment, financing statements and other public records, on verifications of accounts and on notices to Account Debtors;

(c)            send requests for verification of Accounts to Account Debtors and, after the occurrence of any Event of Default, to notify Account Debtors to make payment directly to Lender; and

(d)            to do all other things Lender deems reasonably necessary or desirable to carry out the terms of this Agreement.

(e)            Borrower hereby ratifies and approves all acts of such attorney.  Neither Lender nor any of its designees shall be liable for any acts or omissions nor for any error of judgment or mistake of fact or law while acting as Borrower's attorney and Borrower hereby releases Lender and Lender's officers, employees and designees, from all liability arising from any act or acts under this Agreement or in furtherance thereof, whether by omission or commission, and whether based upon any error of judgment or mistake of law or fact.

5.2.           Access to Books, Records and Collateral.  Lender or Lender's representatives shall at all reasonable times and upon reasonable prior notice have free access to and right of inspection of the Collateral and have full access to and the right to examine and make copies of Borrower's Records, to confirm and verify all Accounts, to perform general audits and field examinations and to do whatever else Lender deems reasonably necessary to protect Lender's interests.  Lender may at any reasonable time upon reasonable prior notice require Borrower to deliver copies of (or after the occurrence of a material Event of Default, original copies) any Records to Lender.  Lender may, at Borrower's cost and expense, use any of Borrower's personnel, supplies, computer equipment (including all computer programs, software and data) and space at Borrower's places of business or at any other place as Lender may designate, as may be reasonably necessary for the handling of collections.

5.4.           Returns; Credits.  All returns of merchandise, credits issued by Borrower, claims or disputes of Account Debtors whether or not accepted by Borrower or given an allowance of any nature shall be reported by Borrower to Lender at least weekly.  Each such report shall be accompanied by copies of all documentation provided to Borrower in support of all merchandise returns, credits, claims and disputes.  Borrower shall, promptly upon obtaining knowledge thereof, report to Lender all reclaimed, repossessed and returned goods, Account Debtor claims and any other matter affecting the value, enforceability or collectability of Accounts.  At Lender's request, any goods reclaimed or repossessed by or returned to Borrower will be set aside, marked with Lender's name and held by Borrower (at Borrower's place of business or at such other place as Lender may designate) for Lender's account and subject to Lender's security interest.  Notwithstanding the foregoing, Lender may require Borrower to pay to Lender the original invoice price of such reclaimed, repossessed or returned goods.  In case any such goods shall be re-sold, the Account thereby created shall be subject to Lender's security interest.

5.5            Disputes.  All claims and disputes relating to Accounts shall be adjusted within a reasonable time at Borrower's own cost and expense.

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SECTION 6.          DEFAULTS AND REMEDIES.

6.1.           The occurrence of any one or more of the following constitute events of default (“Events of Default”):

(a)            The material breach by the Borrower of any of the terms, representations, warranties, covenants, conditions or provisions of this Agreement of any of the Loan Documents or any supplement or amendment hereto or thereto, which, provided it shall not constitute any other Event of Default, shall remain uncured for more than thirty (30) days after notice thereof to the Borrower; or

(b)            The failure of the Borrower to pay any Obligation to Lender calling for the payment of money pursuant to this Agreement or any of the Loan Documents, as and when the same should be paid; the Borrower becoming insolvent or otherwise failing to meet its or their debts as they mature; the Borrower suspending or discontinuing its business for any reason; the Borrower commencing or having commenced against it a petition for a receivership of its business or property or a bankruptcy or any other legal proceeding or action relating to the relief of debtors or the readjustment of debts; the Borrower making an assignment for the benefit of creditors, seeking a composition of creditors or calling a meeting of creditors or have a creditors' committee appointed; or Borrower suffering a lien against or judgment or the attachment of any of its property (which has not been bonded or otherwise secured); having a receiver, custodian or trustee of any kind appointed with regard to any property of Borrower; the Borrower disposing of any property included in the Collateral otherwise than in accordance with this Agreement; or the Borrower committing or suffering, by any of its agents or employees, a fraudulent conversion of any material part of the Collateral;.

(c)            Any Material Adverse Change occurs in Borrower's business, assets, operations, prospects or condition, financial or otherwise, or the prospect of repayment of any portion of the Obligations or the value or priority of Lender’s security interest in the Collateral is materially impaired;

(d)            Any default shall occur under any Material Agreement between Borrower and any third party including, without limitation, any default which would result in a right by such third party to accelerate the maturity of any indebtedness of Borrower to such third party in excess of $ 50,000;

(e)            Any representation or warranty made or deemed to be made by Borrower, any affiliate or any other Loan Party in any Loan Document or any other statement, document or report made or delivered to Lender in connection therewith shall prove to be false or misleading or the failure to disclose any material disclosure which if disclosed shall prove to have been misleading in any material respect;

(f)             Any guarantor of the Obligations hereunder dies, terminates or attempts to terminate its guaranty or any security therefor or becomes subject to any bankruptcy or other insolvency proceeding; or

(g)            Any transfer of the issued and outstanding shares of common stock or other evidence of ownership of Borrower which would result in a change in control.

NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, LENDER RESERVES THE RIGHT TO CEASE MAKING ANY LOANS DURING ANY CURE PERIOD STATED ABOVE, AND THEREAFTER IF AN EVENT OF DEFAULT HAS OCCURRED.

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6.2.           REMEDIES.

(a)            Upon the occurrence of an Event of Default, Lender may, at its option and in its sole discretion and in addition to all of its other rights under the UCC, this Agreement, and the other Loan Documents, cease making advances or Loans, charge the Default Rate of Interest on all Obligations, terminate this Agreement and/or declare all of the Obligations to be immediately payable in full.  Borrower agrees that Lender shall also have all of its rights and remedies under applicable law, including without limitation, the default rights and remedies of a secured party under the UCC (which includes the right to notify Account Debtors of the Borrower to make payment directly to Lender), and upon the occurrence of an Event of Default, Borrower hereby consents to the appointment of a receiver by Lender in any action initiated by Lender pursuant to this Agreement and to the jurisdiction and venue set forth in this Agreement, and Borrower waives notice and posting of a bond in connection therewith.

                (b)           Lender is authorized and empowered at any time upon the occurrence and continuation of an Event of Default, to compromise or extend the time for payment of any Account, for such amounts and upon such terms as Lender may, in its sole discretion determine and to accept the return of the merchandise represented by any Account, all without notice to or consent by Borrower, and without discharging or affecting Borrower's Obligations hereunder to any extent, and Borrower will, upon demand, pay to Lender the amount of any allowance given or authorized by Lender hereunder.

(c)            Lender may, at any time upon the occurrence and continuation of an Event of Default, take possession of the Collateral and keep it on Borrower's premises, at no cost to Lender, or remove any part of it to such other place(s) as Lender may desire.  In the event Lender seeks to take possession of all or any portion of the Collateral by judicial process (including, but not limited to, Lender obtaining an order of attachment, a temporary restraining order, a preliminary or permanent injunction or otherwise) against the Borrower or with regard to the Collateral, Borrower irrevocably waives the posting of any bond, surety or security with respect thereto which might otherwise be required, any demand for possession prior to the commencement of any suit or action to recover the Collateral, and any requirement that Lender retain possession and not dispose of any Collateral until after trial or final judgment.

(d)            Lender shall have the right in such manner and upon such terms as Lender shall determine in Lender’s reasonable business discretion, to enforce payment of any Collateral, to settle, compromise or release in whole or in part, any amounts owing on any Collateral, to prosecute any action, suit or proceeding with respect to the Collateral, to extend the time of payment of any and all Collateral, to make allowances and adjustments with respect thereto, to issue credits in Lender's or Borrower's name, to sell, assign and deliver the Collateral (or any part thereof) at public or private sale, for cash, upon credit or otherwise at Lender's sole option and discretion, and Lender may bid or become purchaser at any such sale, free from any right of redemption which is hereby expressly waived to the extent permitted by applicable law.  Borrower agrees that Lender has no obligation to preserve rights to the Collateral or marshaling any Collateral for the benefit of any Person.  Lender may sell the Collateral without giving any warranties as to the Collateral and may specifically disclaim any warranties of title or the like without affecting the commercial reasonableness of the sale of any of the Collateral.  Lender is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, name, trade secrets, trade names, trademarks and advertising matter, or any similar property, in completing production, advertising or selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit.  Borrower agrees that the giving of ten (10) days' notice by Lender, sent by ordinary mail, postage prepaid, to Borrower's address set forth herein, designating the place and time of any public sale or of the time after which any private sale or other intended disposition of the Collateral is to be made, shall be deemed to be reasonable notice thereof and Borrower waives any other notice with respect thereto.

(e)            The net cash proceeds, after deducting all costs and expenses of sale (including attorneys’ fees and other professional fees), resulting from the exercise of any of Lender's rights or remedies under this Agreement, the UCC or other applicable law, shall be applied by Lender to the payment of the Obligations in such order as Lender may elect, in Lender’s sole discretion.  Lender shall return any excess to Borrower and Borrower shall remain liable to Lender for any deficiency, to the fullest extent permitted by law.  Without limiting the generality of the foregoing, if Lender enters into any credit transaction, directly or indirectly, in connection with the disposition of any Collateral, Lender shall reduce the Obligations by the amount of such credit transaction.

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(f)             The enumeration of the foregoing rights and remedies is not intended to be exclusive, and such rights and remedies are in addition to and not by way of limitation of any other rights or remedies Lender may have under the UCC or other applicable law.  Lender shall have the right, in Lender's sole and absolute discretion, to determine which rights and remedies, and in which order any of the same, are to be exercised, and to determine which Collateral is to be proceeded against and in which order, and the exercise of any right or remedy shall not preclude the exercise of any others, all of which shall be cumulative.

(g)            No act, failure or delay by Lender shall constitute a waiver of any of its rights or remedies.  No single or partial waiver by Lender of any provision of this Agreement or any supplement or amendment hereto, or breach or default thereunder, or of any right or remedy which Lender may have shall operate as a waiver of any other provision, breach, default, right or remedy or of the same provision, breach, default, right or remedy on a future occasion.

(h)            Borrower waives presentment, notice of dishonor, protest and notice of protest of all instruments included in or evidencing any of the Obligations or the Collateral and any and all notices or demands whatsoever (except as expressly provided herein).  Lender may, at all times, proceed directly against Borrower or any guarantor or endorser to enforce payment of the Obligations and shall not be required to take any action of any kind to preserve, collect or protect Lender's or Borrower's rights in the Collateral.

SECTION 7.         MISCELLANEOUS

7.1.           Term.  This Agreement shall become effective upon acceptance by Lender and shall continue in full force and effect for a term ending on the last business day of the month, one (1) year from the date hereof (the "Initial Term") and shall automatically renew from year to year thereafter (each, a “Renewal Term”) until terminated pursuant to the terms hereof.  In addition to Lender's right to declare this Agreement immediately terminated at any time upon the occurrence of an Event of Default, Lender may terminate this Agreement at the end of the Initial Term or upon the expiration or any Renewal Term by giving Borrower at least sixty (60) days prior written notice of such termination by registered or certified mail, return receipt requested.  Borrower may terminate this Agreement at the expiration of the Initial Term or upon the expiration of any Renewal Term by giving Lender at least sixty (60) days prior written notice of such termination by registered or certified mail, return receipt requested.  No termination of this Agreement, however, shall relieve or discharge Borrower of Borrower's duties, obligations and covenants hereunder until all Obligations have been paid in full and Lender's continuing security interest in and to the Collateral shall remain in effect until all such Obligations have been fully discharged.

7.2.           Early Termination Fee.  If Lender terminates this Agreement upon the occurrence of an Event of Default or if Borrower terminates this Agreement, in either case prior to the expiration of the Initial Term or the expiration of any Renewal Term, in view of the impracticality and extreme difficulty in ascertaining Lender's actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits as a result thereof, Borrower hereby agrees that, in addition to payment of the Obligations as provided herein, Borrower shall immediately pay to Lender by wire transfer, certified check or bank cashier's check, liquidated damages of an amount equal to the total of the Minimum Interest Charges for the number of months remaining until the expiration of the Initial Term or the expiration of any Renewal Term, as applicable.  Prior to its actual receipt of payment as aforesaid, Lender shall be free to exercise, without limitation, all of its right under this Agreement.  The liquidated damages provided for in this Section shall be deemed included in the Obligations and shall be presumed to be the amount of damages sustained by Lender due to the Borrower's early termination and Borrower agrees that such damages are reasonable and appropriate under the circumstances currently existing.

7.3.           One General Obligation; Cross Collateral.  All Loans and advances by Lender to Borrower under this Agreement, the other Loan Documents and under all other agreements, present and future, between Lender and Borrower constitute one loan, and all indebtedness and obligations of Borrower to Lender under this Agreement, the other Loan Documents, and under all other agreements, present and future, between Lender and Borrower, constitute one general obligation secured by the Collateral and security held and to be held by Lender hereunder and by virtue of all other agreements between Borrower (and all guarantors) and Lender now and hereafter existing.  It is distinctly understood and agreed that all of the rights of Lender contained in this Agreement shall likewise apply insofar as applicable to any modification of or supplement to this Agreement, the other Loan Documents and to any other agreements, present and future, between Lender and Borrower.

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7.4.           Binding on Successor and Assigns; Severability.  All terms, conditions, promises, covenants, provisions and warranties shall inure to the benefit of and bind Lender’s and Borrower's respective representatives, successors and assigns.  If any provision of this Agreement shall be prohibited or invalid under applicable law, it shall be ineffective only to such extent, without invalidating the remainder of this Agreement.

7.5.           Amendments; Assignments.  This Agreement may not be modified, altered or amended, except by an agreement in writing signed by Borrower and Lender, which requirement shall not be modified by oral agreement or by course of conduct.  Borrower may not sell, assign or transfer any interest in this Agreement or any other Loan Document, or any portion thereof, including, without limitation, any of Borrower's rights, title, interests, remedies, powers and duties hereunder or thereunder.  Borrower hereby consents to Lender’s participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement and any of the other Loan Documents, or of any portion hereof or thereof, including, without limitation, Lender’s rights, title, interests, remedies, powers and duties hereunder or thereunder.  In connection therewith, subject to compliance with federal and state securities laws regarding the disclosure of material non-public information, Lender may disclose all documents and information which Lender now or hereafter may have relating to Borrower or Borrower's business.  To the extent that Lender assigns its rights and obligations hereunder to a third party, Lender shall thereafter be released from such assigned obligations to Borrower and such assignment shall effect a novation between Borrower and such third party.

7.6.           Integration; Survival.  This Agreement, together with the Loan Schedule (which is a part hereof) and the other Loan Documents, reflect the entire understanding of the parties with respect to the transactions contemplated hereby.  All of the representations and warranties of Borrower contained in this Agreement shall survive the execution, delivery and acceptance of this Agreement by the parties.  No termination of this Agreement (or of any guaranty of the Obligations) shall affect or impair the powers, obligations, duties, rights, representations, warranties or liabilities of the parties hereto and all shall survive such termination.

7.7.           Evidence of Obligations.  Each Obligation may, in Lender’s discretion, be evidenced by notes or other instruments issued or made by Borrower to Lender.  If not so evidenced, such Obligation shall be evidenced solely by entries upon Lender’s books and records.

7.8.           Loan Requests.  Each oral or written request for an advance by any Person who purports to be any employee, officer or authorized agent of Borrower shall be made to Lender on or prior to 11:00 a.m., NY time, on the business day on which the proceeds thereof are requested to be paid to Borrower and shall be conclusively presumed to be made by a Person authorized by Borrower to do so and the crediting of a loan to Borrower's operating account shall conclusively establish Borrower's obligation to repay such loan. Unless and until Borrower otherwise directs Lender in writing, all loans shall be wired to Borrower's operating account set forth on the Loan Schedule.

7.9            Brokerage Fees.  Borrower represents and warrants to Lender that, with respect to the financing transaction herein contemplated, no Person is entitled to any brokerage fee or other commission and Borrower agrees to indemnify and hold Lender harmless against any and all such claims.

7.10           Application of Insurance Proceeds.  The net proceeds of any casualty insurance insuring the Collateral, after deducting all costs and expenses (including attorneys’ fees) of collection, shall be applied, at Lender’s option, either toward replacing or restoring the Collateral, in a manner and on terms satisfactory to Lender, or toward payment of the Obligations.  Any proceeds applied to the payment of Obligations shall be applied in such manner as Lender may elect.  In no event shall such application relieve Borrower from payment in full of all installments of principal and interest which thereafter become due in the order of maturity thereof or with respect to the payment of fees and costs.

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               7.11.          Notices, Correspondence.  All notices, requests, demands and other communications under this Agreement shall be in writing and will be personally served, telecopied or sent by overnight courier service or United States mail and will be deemed to have been given: (i) if delivered in person, when delivered; (ii) if delivered by telecopy, on the date of transmission if transmitted on a business day before 4:00 p.m. New York time or, if not, on the next succeeding business day; (iii) if delivered by overnight courier, the following business day after depositing with such courier, properly addressed; or (iv) if by U.S. Mail, four (4) business days after depositing in the United States mail, with postage prepaid and properly addressed.  All notices, requests and demands are to be given or made to the respective parties at the addresses set forth herein or at such other addresses as either party may designate in writing by notice in accordance with the provisions of this paragraph.  All notices to Lender should be addressed to the attention of:  Portfolio Manager.  All notices to Borrower should be addressed to the attention of :  Chief Financial Officer.

7.12.         Governing Law.  This Agreement and all transactions hereunder are deemed to be consummated in the State of New York and shall be governed by and interpreted in accordance with the substantive and procedural laws of the State of New York (without regard to any choice of law rules).  If any part or provision of this Agreement shall be determined to be invalid or in contravention of any applicable law or regulation of the controlling jurisdiction, such part or provision shall be severed without affecting the validity of any other part or provision of this Agreement.

7.13.         JURY WAIVER.  BORROWER AND LENDER EACH HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ANY SUPPLEMENT OR AMENDMENT HERETO OR THERETO.  BORROWER HEREBY WAIVES ALL OF ITS RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE ANY DEFENSES AND/OR COUNTERCLAIMS IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER CONNECTED WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ANY SUPPLEMENT OR AMENDMENT HERETO OR THERETO (OTHER THAN DEFENSES OR COUNTERCLAIMS THAT MUST BE MADE OR DEEMED WAIVED).  BORROWER HEREBY IRREVOCABLY CONSENTS AND SUBMITS TO THE JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE COUNTY OF NEW YORK (WITHOUT REGARD TO ANY CHOICE OF LAW RULES) OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING OF ANY KIND ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ANY SUPPLEMENT OR AMENDMENT HERETO OR THERETO.  BORROWER AGREES THAT ANY ACTION BROUGHT BY IT AGAINST LENDER WITH REGARD TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ANY SUPPLEMENT OR AMENDMENT HERETO OR THERETO, SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CHOICE OF LAW RULES), LOCATED IN THE COUNTY OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK.

7.14.         Service.  In any litigation brought by Lender, Borrower waives personal service of any summons, complaint or other process and agrees that service thereof may be made by certified or registered mail directed to Borrower at Borrower's address set forth in the preamble of this Agreement.

7.15.         Lien Termination.  In recognition of Lender’s right to have all of its attorneys’ fees and other expenses incurred in connection with this Agreement secured by the Collateral, notwithstanding the payment in full of the Obligations, Lender shall not be required to execute or record any terminations or satisfactions of any of its liens on the Collateral unless and until Borrower (and all Guarantors) have executed and delivered to Lender general releases of all claims, in form and substance satisfactory to Lender in Lender’s reasonable discretion.

7.16          Publication.  Borrower and Lender agree that no public release or announcement concerning the transactions contemplated hereby shall be issued by any party without the prior consent of the other parties (which consent shall not be unreasonably withheld, conditioned or delayed), except as such release or announcement may be required by law, in which case the party required to make the release or announcement shall use its reasonable best efforts to allow the other party reasonable time to comment on such release or announcement in advance of such issuance.

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7.17.         Counterparts; Facsimile Execution.  This Agreement may be executed in one or more counterparts, each of which taken together shall constitute one and the same instrument, admissible into evidence.  An executed facsimile of this Agreement shall be deemed to be a valid and binding agreement between the parties hereto.

BIOANALYTICAL SYSTEMS INC.
By:
Name:	Michael R. Cox
Title:	Vice President - Finance
ACCEPTED:
ENTREPRENEUR GROWTH CAPITAL LLC
By:
Name:	Dean Landis
Title:	President

STATE OF INDIANA	)
	)ss.:
COUNTY OF	)

On this 13th day of January, 2010 before me personally appeared Michael R. Cox,  personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she a Vice President of BIOANALYTICAL SYSTEMS INC., the corporation herein described and that he/she executed the same in his/her capacity as an officer of said corporation, and that he/she signed the instrument by order of the board of directors of said corporation.

Notary Public

Page 16 of 16

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

List of Subsidiaries

Name	Jurisdiction of Organization
Bioanalytical Systems, Ltd.	United Kingdom
BAS Instruments, Ltd.	United Kingdom
BAS Analytics, Ltd.	United Kingdom
BAS Evansville, Inc.	Indiana

EX-23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Bioanalytical Systems, Inc.

We consent to the incorporation by reference in the Registration Statements (Nos. 333-56123, 333-56127 and 333-153734) on Form S-8 of Bioanalytical Systems, Inc. of our report dated January 13, 2010, with respect to the consolidated balance sheets of Bioanalytical Systems, Inc. as of September 30, 2009 and 2008, and the related consolidated statement of operations, shareholders’ equity and comprehensive income (loss), and cash flows for the years then ended appearing in this Annual Report on Form 10-K of Bioanalytical Systems, Inc. for the year ended September 30, 2009.

/s/ Crowe Horwath LLP

Crowe Horwath LLP

Indianapolis, IN

January 13, 2010

EX-31.1

CERTIFICATIONS

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

1. I have reviewed this report on Form 10-K 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:  January 13, 2010	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-K 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:  January 13, 2010	Michael R. Cox Chief Financial Officer

EX-32

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-K Annual Report of the Company for the year ended September 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:  January 13, 2010

By:  /s/  Michael R. Cox

Michael R. Cox

Vice President, Finance and Administration

and Chief Financial Officer

Date:  January 13, 2010