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, 2008.ORo
            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(Address
      of principal executive offices)
                      
                      (Zip
      code)
  (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 Global Market





Indicate
by checkmark if the registrant is a well-known seasoned issuer, as defined by
Rule 405 of the Securities Act.  YES oNO 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 oNO 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. o





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


Large accelerated filer oAccelerated
filer oNon-accelerated
filer oSmaller
Reporting Company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).    YES oNO x





Based on
the closing price on the NASDAQ Global Market on March 31, 2008, the
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant is $19,197,000. As of December 31, 2008,
4,915,318 shares of registrant's common shares were outstanding. No shares of
registrant's Preferred Stock were outstanding as of December 31,
2008.




Documents
Incorporated by Reference





Portions
of the registrant’s definitive proxy statement for its 2009 Annual Meeting of
Shareholders are incorporated by reference into


Part III
hereof.









TABLE OF
CONTENTS





PagePART
      IItem
      1.
              Business
              1Item
      1A.
              Risk
      Factors
              12Item
      1B.
              Unresolved
      Staff Comments
              17Item
      2.
              Properties
              17Item
      3.
              Legal
      Proceedings
              18Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              18PART
      IIItem
      5.
              Market
      for Registrant's Common Equity and Related Stockholder
    Matters
              18Item
      6.
              Selected
      Financial Data
              19Item
      7.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              20Item
      7A.
              Quantitative
      and Qualitative Disclosures about Market Risk
              27Item
      8.
              Financial
      Statements
              28Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              51Item
      9A.
              Controls
      and Procedures
              51Item
      9B.
              Other
      Information
              52PART
      IIIItem
      10.
              Directors
      and Executive Officers of the Registrant
              52Item
      11.
              Executive
      Compensation
              53Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management
              53Item
      13.
              Certain
      Relationships and Related Transactions
              53Item
      14.
              Principal
      Accounting Fees and Services
              53PART
      IVItem
      15.
              Exhibits
      and Financial Statement Schedules
              54









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
12.  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 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 research to understand the underlying causes of central nervous
system disorders, diabetes, osteoporosis and other diseases since its formation
in 1974.




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




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 cradle-to-grave pharmaceutical development services. Our products
are also marketed to academic and governmental institutions. Our services and
products may have distinctly different customers (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 a
larger pool of drug candidates. Clients also demand 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.




1




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.




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 should lead to more outsourcing.
Consolidation may result in short-term disruption in placement of, or progress
on, drug development programs as merging companies rationalize their respective
drug development pipelines.




Biotechnology Industry and
Virtual Drug Company Growth




The
biotech industry continues to grow and has introduced many new developmental
drugs. Many biotech 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
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 client expectations.




Globalization of the
Marketplace




Foreign
firms are relying 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.




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.




2




Clients
work with our preclinical services group to establish pharmacokinetics,
pharmacodynamics and safety testing of the new drug. These safety studies range
from acute safety monitoring of drugs and medical devices to chronic, multi-year
oncogenicity studies. Bioanalyses of blood sampled under these protocols by our
bioanalytical services group provide kinetic, metabolism and dose-ranging data.
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 preclinical development. The Culex® APS, a
robotic automated pharmacology system, enables researchers to develop
pharmacokinetic profiles of drugs during early screening in rodents quickly and
cost effectively. Clients and our bioanalytical services group sometimes use
electrochemistry and chromatography products to develop a single, quick,
proprietary method to screen drugs in biological samples. Liquid chromatography
coupled to mass spectrometry is now a mainstay of our bioanalytical
laboratories. We have invested heavily in robotics and mass spectrometry systems
over the last ten years.




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.




We no
longer perform Phase I clinical studies following the sale of the Baltimore
Clinical Pharmacology Research Unit.




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.




Our
services include bioavailability testing to monitor the rate and extent to which
a drug becomes available in the blood. Bioavailability can also be used to
compare the bioequivalence of similar generic and brand name drugs.




3)           Post-approvalfollows 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.




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 and 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.




3




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 $32.9 million for fiscal 2008. 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 necessary 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
      preclinicalin vivosampling 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, and in some cases dominates,
unique niches in life science research. We design, develop, manufacture and
market state-of-the-art:




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




·
            In vivomicrodialysis
      collection systems




·
            Physiology
      monitoring tools




·
            Liquid
      chromatography and electrochemistry instruments
  platforms




Revenues
from continuing operations for our products segment were $8.8 million for fiscal
2008.  The following is a description of the products we
offer:




·
            The
      Culex®
      APS robotic automated pharmacology system is used by pharmaceutical
      researchers to monitor drug concentrations and response as a function of
      time. Compared to current manual methods, the Culex® offers greater than
      80% reduction in test model use and comparable reduction in labor. The
      Culex® also offers computer-controlled blood sampling protocol, behavioral
      monitoring, flexibility to collect other biological samples, exceptional
      cost savings, significant reduction in model stress and expeditious data
      delivery.




4




·
            Bioanalytical
      separation systems(liquid chromatography) are used to detect and quantify low concentrations
      of substances by tracking complex chemical, physiological and behavioral
      effects in biological fluids and tissues from humans and laboratory animal
      models.




·
            Specialized
      chemical analyzersmonitor trace levels of organic chemicals, such as neurotransmitters, in
      biological samples using core electrochemistry, liquid chromatography and
      enzymology technologies to separate and quantify drugs, xenobiotics,
      metabolites and other chemicals in blood, cerebrospinal fluid and other
      biological media.




·
            epsilonTMis a single liquid
      chromatography and electrochemistry instrument control platform for the
      separation systems and chemical analyzers noted
    above.




·
            A line of miniaturizedin vivosampling
      devicessold to drug
      developers and medical research centers, assist in the study of a number
      of medical conditions including stroke, depression, Alzheimer's and
      Parkinson's diseases, diabetes and
  osteoporosis.




·
            Vetronicssmall animal diagnostic
      electro-cardiogram and vital signs monitors are used primarily 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 14% 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. We believe that smaller companies are
more inclined to establish a consistent, long-term, strategic relationship, but
realize that they may be poorly funded. We have adapted by increasing our focus
on a larger number of specialist service buyers at large and small clients and
by engaging in more active and more diversified business development
efforts.




Pfizer is
our largest client. Pfizer accounted for approximately 7.4% and 5.8% of our
total revenues from continuing operations in fiscal 2008 and 2007, respectively.
Pfizer accounted for 10.0% and 5.5% of total trade accounts receivable from
continuing operations at September 30, 2008 and 2007, respectively.




There can
be no assurance that our business will not continue to be dependent on continued
relationships with Pfizer 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




Capitalizing
on our long history of innovation and technical excellence, our current sales
and marketing plan targets 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 with the goal of increasing that
number through fiscal 2009.




Sales,
marketing and technical supports are based in the corporate headquarters located
in West Lafayette, Indiana. We also maintain offices in Evansville, Indiana;
McMinnville, Oregon; and Warwickshire, UK.




We have a
network of 14 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. International growth is planned through stronger local
promotion to support our distributor network.




5




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. In the past year, 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.




We
cannot provide any assurance that we will be able to realize all or most of the
net revenues included in backlog or estimate the portion expected to be filled
in the current year. 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;




6




·
            financial
      viability;




·
            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 sciences research
laboratories, we continue to serve that product niche today.  We
target underserved markets not addressed by larger capital equipment
manufacturers.  While we must sometimes compete on price with our
products, we mainly compete on its overall value proposition, providing
equipment that enables our customers to attain premium scientific laboratory
information, on a reasonable operating investment.  We continually
invest in the refinement of our products, and in new product opportunities that
meet our operating objectives.




·
            TheCulex®
      APSrobotic
      automated pharmacology system is used by pharmaceutical researchers to
      monitor drug concentrations and response as a function of time. Compared
      to current manual methods, the Culex® offers greater than 80% reduction in
      test model use and comparable reduction in labor. The Culex® also offers
      computer-controlled blood sampling protocol, behavioral monitoring,
      flexibility to collect other biological samples, exceptional cost savings,
      significant reduction in model stress and expeditious data
      delivery.




·
            Bioanalytical
      separation systems(liquid chromatography) are used to detect and quantify low concentrations
      of substances by tracking complex chemical, physiological and behavioral
      effects in biological fluids and tissues from humans and laboratory animal
      models.




·
            Specialized
      chemical analyzersmonitor trace levels of organic chemicals, such as neurotransmitters, in
      biological samples using core electrochemistry, liquid chromatography and
      enzymology technologies to separate and quantify drugs, xenobiotics,
      metabolites and other chemicals in blood, cerebrospinal fluid and other
      biological media.




·
            epsilonTMis a single liquid
      chromatography and electrochemistry instrument control platform for the
      separation systems and chemical analyzers noted
    above.




·
            A line of miniaturizedin vivosampling
      devicessold to drug
      developers and medical research centers, assist in the study of a number
      of medical conditions including stroke, depression, Alzheimer's and
      Parkinson's diseases, diabetes and
  osteoporosis.




·
            Vetronicssmall animal diagnostic
      electro-cardiogram and vital signs monitors are used primarily in
      veterinary clinics.




Government
Regulation




We are
subject to various regulatory requirements designed to ensure the quality and
integrity of our data and products. These regulations are governed 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 five times: twice in West
Lafayette, once each in the UK, Oregon, and Evansville locations. Of the five
FDA audits, three were without findings.  The UK facility was found to
be compliant with GLP and GCP.  There were no material adverse
findings in any of these audits.




7




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




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 2008, our laboratory operations
were fully in compliance with 21 CFR Part 11, in our analytical, bioanalytical,
toxicology, lab information management, and document management systems. All of
these systems were also 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 the current fiscal year, September 30, 2008.  Management’s
assessment and report on internal controls over financial reporting is included
in Item 8 and 9A.




8




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.




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
2008 and 2007, we spent $781 and $881, 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.




9




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 vivoproduct 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.




In fiscal
2008, the intangible assets amortization expense includes 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 have 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, 2008, we had 281 full-time employees and 30 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, 2008. 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
                        
                        PositionRichard
      M. Shepperd
                        
                        68
                        
                        Director,
      President and Chief Executive OfficerMichael
      R. Cox
                        
                        61
                        
                        Vice
      President, Finance; Chief Financial and Administrative Officer;
      TreasurerEdward
      M. Chait, Ph.D.
                        
                        66
                        
                        Executive
      Vice President; Chief Business OfficerJon
      Brewer
                        
                        47
                        
                        Vice
      President, Sales and MarketingCraig S. Bruntlett, Ph.D.
                        
                        59
                        
                        Senior
      Vice President, Sales DevelopmentLina
      L. Reeves-Kerner
                        
                        57
                        
                        Vice
      President, Human
Resources




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 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.




10




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.




Edward M. Chait, Ph.D.had
been Executive Vice President, Chief Scientific Officer since August 2005. In
October 2007, he relinquished that position and became Chief Business Officer,
responsible for operations across the Company’s products and
services.  Prior to joining the Company, from August 2003, Dr. Chait
served as the Chief Executive Officer of Spectral Genomics, Inc., a developer of
products and services related to molecular genetics and diagnostics enabling the
identification of the causal factors of disease at the genetic level. From 2001
to 2003, Dr. Chait served as the Chief Executive Officer of PharmaCore, Inc., a
small-molecule drug discovery company providing molecular building blocks,
custom organic synthesis and GMP services to biotechnology and pharmaceutical
companies. From 1991 to 2001, Dr. Chait was Senior Vice President in charge of
Business Development for Intergen Company, a private biotech manufacturing and
research products company. Since 2002, Dr. Chait has also served as an advisor
to the Purdue Cancer Center, a National Cancer Center designated basic-research
cancer center. From 1968 to 1991, Dr. Chait held positions of increasing
responsibility in marketing and business development at DuPont in instrument and
life science products. Dr. Chait has a Ph.D. in chemistry from
Purdue.  As of November 7, 2008, Mr. Chait has resigned his position
as Chief Business Officer of the Company.




Jon D. Brewerwas 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.





Craig S. Bruntlett, Ph.D. has
been Senior Vice President of Sales development 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




11




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.




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.





The
Global Credit Crisis and Market Downturn has probably 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 threatens the stability of the global economy and has
adversely impacted consumer confidence and spending. We believe this global
credit crisis has also had a negative impact on 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 Global Market, our
common stock could be de-listed from the NASDAQ Global Market.





The
National Association of Securities Dealers, Inc. has established certain
standards for the continued listing of a security on The NASDAQ Global
Market.  These standards require, among other things, that a listed
issuer have either (i) listed securities with a market value of at least
$35 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.




During
the current economic slowdown, the NASDAQ has temporarily suspended the stock
price/market capitalization de-listing procedures.  These rules will
be reinstated on April 20, 2009.  NASDAQ has not indicated any further
suspension of those requirements beyond that date.




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
investors:




•
            
            the
      liquidity of our common stock;




12





•
            
            the
      market price of our common stock;•
            
            our
      ability to obtain financing for the continuation of our
      operations;•
            
            the
      number of institutional 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
end of the 2008 fiscal year on September 30, 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.  If this condition continues, our business could
suffer.




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.




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.




13





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.





In
particular, since September 30, 2008, we experienced substantial turnover in our
marketing and business development teams.  Specifically, our Senior
Vice President and Chief Business Officer , our Vice President of Business
Development and several of our leading sales team are no longer with the
Company.  We are currently rebuilding our sales
organization.  There is no assurance that our efforts will be
successful.







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




14




•
            
            actions
      by regulatory authorities.





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 create 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:





·
            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




15




·
            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 slow our growth.




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.




16




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 may rely on credit facilities to provide working capital to support the
operations of business.  We regularly evaluate alternative financing
sources; however we have no other agreements or arrangement in place at this
time.  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 Laboratoryis
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.




17




ITEM
3-LEGAL PROCEEDINGS





We
currently do not have any 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




Our
common stock is traded on the NASDAQ Global Market under the symbol
“BASi.”  The following table sets forth the quarterly high and low
sales price per share of our common stock from October 1, 2006 through September
30, 2008.




High
                    
                    
                    LowFiscal
      Year Ended September 30, 2007First
      Quarter
                    
                    $
                    5.74
                    
                    
                    $
                    4.98Second
      Quarter
                    
                    
                    7.36
                    
                    
                    
                    5.25Third
      Quarter
                    
                    
                    7.80
                    
                    
                    
                    6.60Fourth
      Quarter
                    
                    
                    7.82
                    
                    
                    
                    6.54Fiscal
      Year Ended September 30, 2008First
      Quarter
                    
                    $
                    9.39
                    
                    
                    $
                    6.76Second
      Quarter
                    
                    
                    8.85
                    
                    
                    
                    5.04Third
      Quarter
                    
                    
                    6.00
                    
                    
                    
                    4.25Fourth
      Quarter
                    
                    
                    5.70
                    
                    
                    
                    4.35




Holders




There
were approximately 2,700 holders of record of our common stock as of December
31, 2008.




Dividends




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




18




Equity
Compensation Plan Information
  We
maintain stock option plans that allow 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
                    
                    
                    704
                    
                    
                    $
                    6.13
                    
                    
                    
                    382Equity
      compensation plans not approved by security holders (1)
                    
                    
                    50
                    
                    
                    $
                    5.14
                    
                    
                    
                    —Total
                    
                    
                    754
                    
                    
                    $
                    6.06
                    
                    
                    
                    382
 
 (1)
Includes option to purchase 25 shares at $4.57 granted to Michael R. Cox on
April 1, 2004, and 25 shares at $5.69 granted to Edward M. Chait on
August 1, 2005. Each of these grants is fully vested and expires after 10
years.
  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.]
  19
  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 Selected Consolidated Financial Data and 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 involve risks and uncertainties which are discussed in Item 1A, Risk
Factors. Our actual results could differ materially from those discussed in the
forward-looking statements. (Amounts in thousands unless otherwise
indicated.)
  Overview
  The
business of Bioanalytical Systems, Inc. is largely dependent on the level of
pharmaceutical and biotech 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.
  Since the
end of the fiscal year on September 30, 2008, we have observed a trend whereby
many drug development companies have reduced their spending on CRO
services.  We believe that this change was in connection with the
global economic and credit market situations.  The outcome of these
factors and their impact on our future performance are not known at this
time.
  20
  Although
the past year has not seen large mergers in either the pharmaceutical or CRO
industries, consolidation continues at a smaller pace in the CRO sector. We
believe that consolidation of the CRO sector will continue to be a factor in our
markets.  As consolidation continues in the CRO sector, competition
among remaining companies continues to be more intense.
  Research
services are capital intensive. The investment in equipment and facilities to
serve our markets is substantial and continuing. While our physical facilities
are excellent 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.
  Results
of Operations
  The
following table summarizes the condensed consolidated statement of operations as
a percentage of total revenues of continuing operations:
  Year Ended September 30,2008
                    
                    
                    2007Service
      revenue
                    
                    
                    79.0
                    %
                    
                    
                    76.9
                    %Product
      revenue
                    
                    
                    21.0
                    
                    
                    
                    23.1Total
      revenue
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Cost
      of service revenue (a)
                    
                    
                    69.7
                    
                    
                    
                    70.9Cost
      of product revenue (a)
                    
                    
                    39.0
                    
                    
                    
                    42.5Total
      cost of revenue
                    
                    
                    63.2
                    
                    
                    
                    64.4Gross
      profit
                    
                    
                    36.8
                    
                    
                    
                    35.6Total
      operating expenses
                    
                    
                    30.1
                    
                    
                    
                    26.9Operating
      income
                    
                    
                    6.7
                    
                    
                    
                    8.7Other
      expense
                    
                    
                    (2.3
                    )
                    
                    
                    (2.2
                    )Income
      from continuing operations before income taxes
                    
                    
                    4.4
                    
                    
                    
                    6.5Income
      tax expense
                    
                    
                    3.2
                    
                    
                    
                    2.6Net
      income from continuing operations
                    
                    
                    1.2
                    %
                    
                    
                    3.9
                    %
 
 (a)
Percentage of service and product revenues, respectively.
  21
  2008 Compared to
2007
 
 Service
and Product Revenues
  Revenues
for the year ended September 30, 2008 increased 4.9% to $41,697 compared to
$39,753 for the year ended September 30, 2007.
  Our
Service revenue increased 7.7% to $32,921 compared to $30,559 for the prior year
primarily as a result of strong increases in bioanalytical and pharmaceutical
analysis revenues.  Our bioanalytical analysis revenues increased
$1,992 (a 12.3% increase over fiscal 2007), with improvements at the West
Lafayette and the UK facilities.  The revenue increases from the UK
facility are mainly due to increased volume when compared to the prior
year.  The West Lafayette facility experienced a higher sample assay
volume and an increase in immunochemistry revenues of nearly $700 over the prior
year.  Pharmaceutical analysis revenues increased $276, or 15.9% over
fiscal 2007, as enhanced sales efforts have aided in business growth for this
group.  Toxicology revenues also contributed to the year over year
increase with a $232, or 2.1%, increase.  Study delays and
cancellations contributed to the lower growth rate for the toxicology
group.
  Sales in
our Products segment decreased 4.6% from $9,194 to $8,776 when compared to the
same period in the prior year.  The majority of that decrease stems
from our Vetronics business of $438 primarily because a contract with a
long-time client was not renewed in fiscal 2008.  Sales of our Culex
automated in vivo
sampling systems declined 4.3% to $4,680 from $4,892 mainly due to the sales of
fewer units.  Finally, the sales of our more mature analytical
products also declined $141, or 4.1%, from fiscal 2007.
  Costs of
Revenues
  Cost of
revenues for the year ended September 30, 2008 was $26,364 or 63.2% of revenue
compared to $25,585, or 64.4% of revenue for the comparable prior
period.
  Cost of
Service revenue as a percentage of Service revenue decreased to 69.7% in the
current fiscal year from 70.9% in the comparable period last
year.  This decrease occurred because a significant portion of our
costs of productive capacity in the Service segment are fixed. Thus, increases
in revenue do not generate proportionate increases in costs.  This
decrease occurred even though an additional charge of $160 was incurred in the
third quarter of the current fiscal year to cover the net costs of performing a
study for a client to recreate data that was not properly archived.
  Costs of
Product revenue as a percentage of Product revenue in the current fiscal year
decreased from 42.5% to 39.0%.  The decrease in the percentage was
mainly due to a decrease in our periodic charges for inventory obsolescence of
$265.  This was the result of higher charges last fiscal year for
products that were discontinued.
  Operating
Expenses
  Selling
expenses for the year ended September 30, 2008 increased by 40.6% to $3,912 from
$2,782 for the year ended September 30, 2007.   This increase was
primarily driven by expanded sales efforts and new hires in both our West
Lafayette and UK facilities along with increased marketing and advertising
efforts. Also, accelerated amortization of $143, related to the impairment of
assets in fiscal 2008, added to the increase.  The impairment of
certain patents, licenses and trademarks reflected a management decision to no
longer support these assets as active since they have no related
revenue-generating products.
  Research
and development expenses for the year ended September 30, 2008 decreased 11.4%
to $781 from $881 for the year ended September 30, 2007. This decrease is
primarily a result of costs related to the commercialization of our
pharmacokinetics and pharmacodynamics services being considered as cost of
services; whereas in the first quarter of the prior fiscal year, they were
considered research and development expenses.   These were
partially offset by higher spending for operating supplies and outside
consultants used in our continued effort on the development of a new product
funded by an NIH grant.
  22
  General
and administrative expenses for the current year increased 14.1% to $7,822 from
$6,855 for the prior year.  The increase is mainly due to the
following:  1) expenses for attracting and hiring new management
personnel in our West Lafayette and UK facilities; 2) an increase in stock
compensation expense with the new option grants in the first and fourth quarters
of fiscal 2008; 3) currency losses; 4) an increase in building rent expense for
our new UK facility; 5) increased travel related expenses; and 6) expenses
related to SOX 404 compliance.
  Other
Income/Expense
  Other
income (expense), net, was $(971) for the year ended September 30, 2008 as
compared to $(891) in the year ended September 30, 2007. This increase is due to
borrowings on our line of credit, causing higher interest expense and lower
interest income year over year.  In fiscal 2007, we did not borrow on
our line of credit.
  Income
Taxes
  Our
effective tax rate for continuing operations for the year ended September 30,
2008 was 72.8% compared to 39.4% for the prior year period.  The main
difference stems from taxes on slightly higher domestic income in fiscal 2008
from which we could not deduct the current loss from our UK facility as well as
the additional expense for uncertain tax positions.  In fiscal 2007,
our UK facility was profitable.
  We
computed our income taxes using an effective tax rate of 41.5% on domestic
earnings for the year ended September 30, 2008. We did not provide income taxes
on foreign earnings due to the availability of net operating loss carryforwards
to offset our taxable income, which have not previously been recognized for
financial statement purposes due to the uncertainty of future
utilization.
  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 they assumed
certain liabilities related to the CPRU.   As a result, we have
exited the market for Phase I first-in-human clinical studies.  Should
AP USA and Algorithme fail to meet their lease commitments, 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 and
exhibits 2.1 and 10.1 to the current report on Form 8-K filed on July 7,
2008.
  Accordingly,
in the consolidated statements of operations and cash flows, we have segregated
the results of the CPRU as discontinued operations for the current and prior
fiscal years.  The loss from discontinued operations reflects the
results of operations of the CPRU through the sale date adjusted for changes in
estimates used to calculate the loss on disposal.  The remaining
estimated cash expenditures related to this unit are recorded as current
liabilities of discontinued operations, since they are expected to be 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.
  In the
fourth quarter of fiscal 2008, we adjusted estimates from the sale date that
were included in the loss on disposal for actual expenses
incurred.  This resulted in a $43 increase to the loss on
disposal.
  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, 2008, we had cash and cash equivalents of $335 compared to $2,837
at September 30, 2007.
  Net cash
provided by continuing operating activities was $3,959 for the year ended
September 30, 2008, compared to $3,823 for the year ended September 30, 2007. In
addition to earnings from continuing operations, an increase in accounts payable
of $969 and an increase in deferred income taxes liability added
$907.  Non-cash charges to operations of $3,013 for depreciation and
amortization and $592 for employee stock option expense increased our expenses,
but did not consume cash.  These were offset by an increase in
accounts receivable of $1,510.  While our receivables vary depending
on where we stand in our mix of contracts, we believe that our new procedures
instituted in the prior fiscal year in billings and collections contributed to
the current positive cash flow from continuing operations.
  23
  Investing
activities used $1,711 in fiscal 2008 mainly due to capital expenditures. Our
principal investments were for laboratory equipment replacements and upgrades in
our West Lafayette, Oregon and UK facilities, new building improvements in the
UK related to relocating to new space, construction costs in our Evansville
facility to convert an area for higher revenue studies and general building and
information technology infrastructure expenditures at all sites.
  Financing
activities used $2,071 in the current fiscal year as compared to $1,095 used for
fiscal 2007. The main use of cash in fiscal 2008 was to repay the balance of our
subordinated debt, approximately $4,500, as well as other long term debt and
capital lease payments of $1,029, partially offset by $1,400 of new long-term
debt and $2,023 net borrowings from our line of credit.  In fiscal
2007, we did not borrow from the line of credit and repaid $1,174 in long term
debt and capital leases.
  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
the year ended September 30, 2008, cash used in operating activities for
discontinued operations of $3,361 is mainly from the loss on
operations.  The $669 provided by investing activities for
discontinued operations during the current fiscal year is mainly due to the $850
of cash proceeds from the sale partially offset by capital
expenditures.
  Capital
Resources
  Property
and equipment spending totaled $3.2 million and $0.9 million in fiscal 2008 and
2007, respectively. The increase in capital expenditures in fiscal 2008 is the
result of the 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. Expenditures in fiscal 2007 were
primarily for the purchase of laboratory equipment. 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
amended our revolving line of credit (“the Agreement”) in October 2007, reducing
our line of credit to $5 million from $6 million as we did not have qualifying
assets sufficient to borrow the higher amount and were paying fees on amounts we
could not use.  We also have three mortgage notes payable to another
bank aggregating $9.2 million. Borrowings under these credit agreements are
collateralized by substantially all assets related to our operations and all
common stock of our U.S. subsidiaries and 65% of the common stock of our
non-United States subsidiaries. Under the terms of these 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 below. These credit agreements contain cross-default provisions with
our mortgages or other borrowings. Details of each debt issue are discussed
below.
  Our
Agreement limits outstanding borrowings to the “borrowing base,” as defined in
the Agreement, up to a maximum available amount of $5,000. As of September 30,
2008, we had $4,448 of available total borrowing capacity of which $2,023 is
outstanding. Borrowings bear interest at a variable rate based on the London
Interbank Offer Rate (LIBOR) or a base rate determined by the lender’s prime
rate plus an applicable margin, as defined in the agreement. The applicable
margin for borrowings under the line of credit ranges from 0.00% to 0.50% for
base rate borrowings and 1.50% to 3.00% for LIBOR borrowings, subject to
adjustment based on the average availability under the line of credit. We also
pay commitment fees on the unused portions of the line of credit ranging from
0.20% - 0.30%. All interest and fees are paid monthly. The line of credit
is a revolver against which we apply cash receipts, and draw cash as needed. The
line of credit is committed until December, 2009.
  On
December 18, 2007, we entered into a new mortgage with Regions Bank (“Regions”)
under which Regions loaned us $1,400 under a term loan maturing December 18,
2010. Interest on the loan is equal to LIBOR plus 215 basis points and requires
monthly payments of approximately $9 plus interest, currently at 6.1%. The
outstanding balance on this loan at September 30, 2008 was $1,322. The loan is
collateralized by real estate at the Company’s West Lafayette and Evansville,
Indiana locations. Regions holds additional mortgage debt on these facilities as
discussed below. We used a portion of the proceeds of the loan and existing cash
on hand to repay our subordinated debt of approximately $4,500 during the first
fiscal quarter. We entered into an interest rate swap agreement with respect to
this loan to fix the interest rate at 6.1%.  We only entered into this
derivative transaction to hedge interest rate risk of this debt obligation and
not to speculate on interest rates.  The fair value of the swap is not
material to the financial statements.
  24
  We have
three outstanding mortgages with Regions on our facilities in West Lafayette and
Evansville, Indiana, which total $7,884.  Two of the mortgages mature
in November 2012 with an interest rate fixed at 7.1%, while the other matures in
February of 2011 due to a renewal completed in February of 2008 for an
additional three years at an interest rate of 5.61%.  See Note 7 to
the Consolidated Financial Statements for additional information.
   The
covenants in our revolving line of credit require that we maintain certain
ratios of interest-bearing indebtedness to EBITDA and net cash flow to debt
servicing requirements, which may restrict the amount we can borrow to fund
future operations, acquisitions and capital expenditures.Additionally, 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 Agreement and the Regions loans both contain
cross-default provisions.  At September 30, 2008, we were in breach of
our tangible net worth requirement, which was subsequently waived and the
requirement amended as of December 19, 2008.
  The
following table summarizes the cash payments under our contractual term debt and
lease obligations at September 30, 2008 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.
  2009
                                        
                                        
                                        2010
                                        
                                        
                                        2011
                                        
                                        
                                        2012
                                        
                                        
                                        2013
                                        
                                        
                                        After 2013
                                        
                                        
                                        TotalMortgage
      notes payable
                                        
                                        $
                                        491
                                        
                                        
                                        $
                                        524
                                        
                                        
                                        $
                                        2,727
                                        
                                        
                                        $
                                        306
                                        
                                        
                                        $
                                        5,158
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        $
                                        9,206Capital
      lease obligations
                                        
                                        
                                        720
                                        
                                        
                                        
                                        650
                                        
                                        
                                        
                                        366
                                        
                                        
                                        
                                        279
                                        
                                        
                                        
                                        148
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        2,163Operating
      leases
                                        
                                        
                                        466
                                        
                                        
                                        
                                        420
                                        
                                        
                                        
                                        411
                                        
                                        
                                        
                                        408
                                        
                                        
                                        
                                        405
                                        
                                        
                                        
                                        3,257
                                        
                                        
                                        
                                        5,367FIN
      48 liability
                                        
                                        
                                        473
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        473$
                                        2,150
                                        
                                        
                                        $
                                        1,594
                                        
                                        
                                        $
                                        3,504
                                        
                                        
                                        $
                                        993
                                        
                                        
                                        $
                                        5,711
                                        
                                        
                                        $
                                        3,257
                                        
                                        
                                        $
                                        17,209
  A $1
million letter of credit securing the Baltimore, MD lease expired in January
2008 and was not renewed.
  We
anticipate spending approximately $2.0 million in fiscal 2009 on capital assets,
primarily laboratory equipment which will be financed using capital
leases.
  Based on
current business activities, we believe cash generated from operations and
amounts available under our existing credit facilities will be sufficient to
fund working capital and capital expenditure requirements for the foreseeable
future and through September 30, 2009.
  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.
  25
  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 for $143 related to certain patents, licenses and trademarks that have no
revenue generating products.
  Goodwill
and other indefinite lived intangible assets, collectively referred to as
"indefinite lived assets," are tested annually for impairment, and are tested
for impairment more frequently if events and circumstances indicate that the
asset might be impaired. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset's fair value.  At September 30,
2008, recorded goodwill was $1,855, and the net balance of other intangible
assets was $144.
  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 $592 and $304 during the fiscal years ended
September 30, 2008 and 2007, respectively.
 
 We use
the binomial option valuation model to determine the grant date fair value. The
determination of fair value is affected by our stock price as well as
assumptions regarding subjective and complex variables such as expected employee
exercise behavior and our expected stock price volatility over the term of the
award. Generally, our assumptions are based on historical information and
judgment is required to determine if historical trends 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 2008 and 2007 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.
 26
 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 fiscal 2009 as
well as 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.
  Additionally,
in accordance with Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109 (“FIN 48”),
which we adopted effective October 1, 2007, when warranted, we maintain a
reserve for uncertain tax positions. Under FIN 48, we may recognize the tax
benefit from an uncertain tax position only if it is more likely than not to be
sustained upon examination based on the technical merits of the position. The
amount of the accrual for which an exposure exists is measured as the largest
amount of benefit determined on a cumulative probability basis that we believe
is more likely than not to be realized upon ultimate settlement of the
position.
  On October 1, 2007, we recorded a $183 additional liability
for uncertain income tax positions for a total liability of $240, which was
accounted for as a reduction to retained earnings, for the cumulative effect
change of adopting FIN 48. Upon
further analysis of our opening liability accounts, we determined that our
recorded liability on October 1, 2007 was $102 greater than our FIN 48 liability
for uncertain tax positions. Accordingly, we revised our original adjustment and
recorded a reduction in tax liability and increase in retained earnings
to properly record our estimate of FIN 48 exposure. During
the fiscal year ended September 30, 2008, we recorded $259 for additional
exposure on uncertain tax positions and $26 as a reduction of uncertain tax
positions, thus increasing our reserve for uncertain income tax positions at
September 30, 2008 to $473. 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. We record interest and penalties accrued in relation to uncertain
income tax positions as a component of income tax expense.  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 liabilities on such earnings have not been recorded.
  Inventories
  Inventories
are stated at the lower of cost or market using the first-in, first-out (FIFO)
cost method of accounting.
  New
Accounting Pronouncements
  We
adopted the following pronouncement for periods beginning October 1,
2007.
  Effective
October 1, 2007, we adopted the provisions of FIN 48.  This authoritative
interpretation clarified and standardized the manner by which companies are
required to account for uncertain income tax positions. Under the guidance of
FIN 48, we may recognize the tax benefit from an uncertain tax position only if
it is more likely than not to be sustained upon regulatory examination based on
the technical merits of the position. The amount of the 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. In order to adjust our
estimated liability of $240 at October 1, 2007, we recorded a $102
reduction in tax liability for uncertain income tax positions, which was
accounted for as an increase to retained earnings, for the cumulative effect
change of adopting FIN 48. The adoption amount was adjusted from our first
quarter filing as explained in our Critical Accounting Policies for income tax
accounting above.
  ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not
applicable.
  27
  ITEM
8-FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 Index to Consolidated
Financial Statements
 
 PageConsolidated
      Financial Statements of Bioanalytical Systems, Inc.:Consolidated
      Balance Sheets as of September 30, 2008 and 2007
                  29Consolidated
      Statements of Operations for the Years Ended September 30, 2008 and
      2007
                  30Consolidated
      Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the
      Years Ended September 30, 2008 and 2007
                  31Consolidated
      Statements of Cash Flows for the Years Ended September 30, 2008 and
      2007
                  32Notes
      to Consolidated Financial Statements
                  33Management’s
      Report on Consolidated Financial Statements and Internal
      Control
                  49Report
      of Independent Registered Public Accounting Firm
                  50Financial
      Statement Schedules:Schedules
      are not required, are not applicable or the information is shown in the
      Notes to the Consolidated Financial Statements.
  28
  BIOANALYTICAL
SYSTEMS, INC.
 CONSOLIDATED
BALANCE SHEETS
 (In
thousands)
 
 As of September 30,2008
                  
                  
                  2007AssetsCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  335
                  
                  
                  $
                  2,837Accounts
      receivableTrade
                  
                  
                  6,705
                  
                  
                  
                  6,674Unbilled
      revenues and other
                  
                  
                  2,653
                  
                  
                  
                  2,565Inventories
                  
                  
                  2,184
                  
                  
                  
                  1,977Deferred
      income taxes
                  
                  
                  516
                  
                  
                  
                  897Refundable
      income taxes
                  
                  
                  1,283
                  
                  
                  
                  774Prepaid
      expenses
                  
                  
                  639
                  
                  
                  
                  776Current
      assets of discontinued operations
                  
                  
                  629
                  
                  
                  
                  —Total
      current assets
                  
                  
                  14,944
                  
                  
                  
                  16,500Property
      and equipment, net
                  
                  
                  23,135
                  
                  
                  
                  22,927Goodwill
                  
                  
                  1,855
                  
                  
                  
                  1,855Intangible
      assets, net
                  
                  
                  144
                  
                  
                  
                  304Debt
      issue costs
                  
                  
                  177
                  
                  
                  
                  211Other
      assets
                  
                  
                  92
                  
                  
                  
                  240Total
      assets
                  
                  $
                  40,347
                  
                  
                  $
                  42,037Liabilities
      and shareholders’ equityCurrent
      liabilities:Accounts
      payable
                  
                  $
                  2,209
                  
                  
                  $
                  1,589Accrued
      expenses
                  
                  
                  2,061
                  
                  
                  
                  3,056Customer
      advances
                  
                  
                  4,032
                  
                  
                  
                  4,115Income
      tax accruals
                  
                  
                  473
                  
                  
                  
                  56Revolving
      line of credit
                  
                  
                  2,023
                  
                  
                  
                  —Current
      portion of capital lease obligation
                  
                  
                  720
                  
                  
                  
                  510Current
      portion of long-term debt
                  
                  
                  491
                  
                  
                  
                  4,821Current
      liabilities of discontinued operations
                  
                  
                  41
                  
                  
                  
                  —Total
      current liabilities
                  
                  
                  12,050
                  
                  
                  
                  14,147Capital
      lease obligation, less current portion
                  
                  
                  1,443
                  
                  
                  
                  1,138Long-term
      debt, less current portion
                  
                  
                  8,715
                  
                  
                  
                  7,861Deferred
      income taxes
                  
                  
                  344
                  
                  
                  
                  337Shareholders’
      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 atSeptember
      30, 2008 and 4,909 at September 30, 2007December,
      2007
                  
                  
                  1,191
                  
                  
                  
                  1,189Additional
      paid-in capital
                  
                  
                  12,561
                  
                  
                  
                  11,957Retained
      earnings
                  
                  
                  4,173
                  
                  
                  
                  5,560Accumulated
      other comprehensive loss
                  
                  
                  (130
                  )
                  
                  
                  (152
                  )Total
      shareholders’ equity
                  
                  
                  17,795
                  
                  
                  
                  18,554Total
      liabilities and shareholders’ equity
                  
                  $
                  40,347
                  
                  
                  $
                  42,037
  The
accompanying notes are an integral part of the consolidated financial
statements.
  29
  BIOANALYTICAL
SYSTEMS, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (In
thousands, except per share amounts)
 
 For the Years Ended
                                                  September 30,2008
                                                
                                                
                                                2007Service
      revenue
                                                
                                                $
                                                32,921
                                                
                                                
                                                $
                                                30,559Product
      revenue
                                                
                                                
                                                8,776
                                                
                                                
                                                
                                                9,194Total
      revenue
                                                
                                                
                                                41,697
                                                
                                                
                                                
                                                39,753Cost
      of service revenue
                                                
                                                
                                                22,941
                                                
                                                
                                                
                                                21,676Cost
      of product revenue
                                                
                                                
                                                3,423
                                                
                                                
                                                
                                                3,909Total
      cost of revenue
                                                
                                                
                                                26,364
                                                
                                                
                                                
                                                25,585Gross
      profit
                                                
                                                
                                                15,333
                                                
                                                
                                                
                                                14,168Operating
      expenses:Selling
                                                
                                                
                                                3,912
                                                
                                                
                                                
                                                2,782Research
      and development
                                                
                                                
                                                781
                                                
                                                
                                                
                                                881General
      and administrative
                                                
                                                
                                                7,822
                                                
                                                
                                                
                                                6,855Loss
      on sale of property and equipment
                                                
                                                
                                                24
                                                
                                                
                                                
                                                165Total
      operating expenses
                                                
                                                
                                                12,539
                                                
                                                
                                                
                                                10,683Operating
      income
                                                
                                                
                                                2,794
                                                
                                                
                                                
                                                3,485Interest
      income
                                                
                                                
                                                29
                                                
                                                
                                                
                                                87Interest
      expense
                                                
                                                
                                                (1,006
                                                )
                                                
                                                
                                                (981
                                                )Other
      income
                                                
                                                
                                                6
                                                
                                                
                                                
                                                3Income
      from continuing operations before income taxes
                                                
                                                
                                                1,823
                                                
                                                
                                                
                                                2,594Income
      taxes
                                                
                                                
                                                1,328
                                                
                                                
                                                
                                                1,022Net
      income from continuing operations
                                                
                                                $
                                                495
                                                
                                                
                                                $
                                                1,572Discontinued
      Operations (Note 5)Loss
      from discontinued operations before income taxes
                                                
                                                $
                                                (2,811
                                                )
                                                
                                                $
                                                (1,095
                                                )Loss
      on disposal
                                                
                                                
                                                (474
                                                )
                                                
                                                
                                                —Tax
      benefit
                                                
                                                
                                                1,301
                                                
                                                
                                                
                                                449Net
      loss from discontinued operations after income taxes
                                                
                                                $
                                                (1,984
                                                )
                                                
                                                $
                                                (646
                                                )Net
      income (loss)
                                                
                                                $
                                                (1,489
                                                )
                                                
                                                $
                                                926Basic
      net income (loss) per share:Net
      income per share from continuing operations
                                                
                                                $
                                                0.10
                                                
                                                
                                                $
                                                0.32Net
      loss per share from discontinued operations
                                                
                                                
                                                (0.40
                                                )
                                                
                                                
                                                (0.13
                                                )Basic
      net income (loss) per share
                                                
                                                $
                                                (0.30
                                                )
                                                
                                                $
                                                0.19Diluted
      net income (loss) per share:Net
      income per share from continuing operations
                                                
                                                $
                                                0.10
                                                
                                                
                                                $
                                                0.32Net
      loss per share from discontinued operations
                                                
                                                
                                                (0.40
                                                )
                                                
                                                
                                                (0.13
                                                )Diluted
      net income (loss) per share
                                                
                                                $
                                                (0.30
                                                )
                                                
                                                $
                                                0.19Weighted
      common shares outstanding:Basic
                                                
                                                
                                                4,914
                                                
                                                
                                                
                                                4,909Diluted
                                                
                                                
                                                4,968
                                                
                                                
                                                
                                                4,960
  The
accompanying notes are an integral part of the consolidated financial
statements.
  30
  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
                  
                  
                  loss
                  
                  
                  equityBalance
      at October 1, 2006
                  
                  
                  4,892
                  
                  
                  
                  1,182
                  
                  
                  
                  11,677
                  
                  
                  
                  4,634
                  
                  
                  
                  (89
                  )
                  
                  
                  17,404Comprehensive
      income:Net
      income
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  926
                  
                  
                  
                  —
                  
                  
                  
                  926Other
      comprehensive loss:Foreign
      currency translation adjustments
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (63
                  )
                  
                  
                  (63
                  )Total
      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  863Stock
      compensation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  208
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  208Exercise
      of stock options
                  
                  
                  17
                  
                  
                  
                  7
                  
                  
                  
                  72
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  79Balance
      at September 30, 2007
                  
                  
                  4,909
                  
                  
                  $
                  1,189
                  
                  
                  $
                  11,957
                  
                  
                  $
                  5,560
                  
                  
                  $
                  (152
                  )
                  
                  $
                  18,554Comprehensive
      loss:Net
      income from continuing operations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  495
                  
                  
                  
                  —
                  
                  
                  
                  495Net
      loss on discontinued operations
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (1,984
                  )
                  
                  
                  —
                  
                  
                  
                  (1,984
                  )Other
      comprehensive income:Foreign
      currency translation adjustments
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  22
                  
                  
                  
                  22Total
      comprehensive loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,467
                  )Stock
      compensation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  592
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  592Exercise
      of stock options
                  
                  
                  6
                  
                  
                  
                  2
                  
                  
                  
                  12
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  14Adoption
      of FIN 48 cumulative adjustment
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  102
                  
                  
                  
                  —
                  
                  
                  
                  102Balance
      at September 30, 2008
                  
                  
                  4,915
                  
                  
                  $
                  1,191
                  
                  
                  $
                  12,561
                  
                  
                  $
                  4,173
                  
                  
                  $
                  (130
                  )
                  
                  $
                  17,795
  The
accompanying notes are an integral part of the consolidated financial
statements.
  31
  BIOANALYTICAL
SYSTEMS, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In
thousands)
 
 Years Ended September 30,2008
                              
                              
                              2007Operating
      activities:Net
      income (loss)
                              
                              $
                              (1,489
                              )
                              
                              $
                              926Adjustments
      to reconcile net income (loss) to net cash provided by continuing
      operating activities:Net
      loss from discontinued operations, including loss on
    disposal
                              
                              
                              1,984
                              
                              
                              
                              646Depreciation
      and amortization
                              
                              
                              3,013
                              
                              
                              
                              3,319Employee
      stock compensation expense
                              
                              
                              592
                              
                              
                              
                              208Bad
      debt expense
                              
                              
                              58
                              
                              
                              
                              (119
                              )Loss
      on sale of property and equipment
                              
                              
                              24
                              
                              
                              
                              165Deferred
      income taxes
                              
                              
                              388
                              
                              
                              
                              (472
                              )Changes
      in operating assets and liabilities:Accounts
      receivable
                              
                              
                              (1,510
                              )
                              
                              
                              (535
                              )Inventories
                              
                              
                              (207
                              )
                              
                              
                              (7
                              )Refundable
      income taxes
                              
                              
                              (509
                              )
                              
                              
                              114Prepaid
      expenses and other assets
                              
                              
                              151
                              
                              
                              
                              (93
                              )Accounts
      payable
                              
                              
                              969
                              
                              
                              
                              (277
                              )Accrued
      expenses
                              
                              
                              433
                              
                              
                              
                              103Customer
      advances
                              
                              
                              62
                              
                              
                              
                              (155
                              )Net
      cash provided by continuing operating activities
                              
                              
                              3,959
                              
                              
                              
                              3,823Investing
      activities:Capital
      expenditures
                              
                              
                              (1,713
                              )
                              
                              
                              (810
                              )Proceeds
      from sale of property and equipment
                              
                              
                              2
                              
                              
                              
                              625Net
      cash used by continuing investing activities
                              
                              
                              (1,711
                              )
                              
                              
                              (185
                              )Financing
      activities:Payments
      of long-term debt
                              
                              
                              (4,876
                              )
                              
                              
                              (702
                              )Borrowings
      on long-term debt
                              
                              
                              1,400
                              
                              
                              
                              —Payments
      on revolving line of credit
                              
                              
                              (14,285
                              )
                              
                              
                              —Borrowings
      on revolving line of credit
                              
                              
                              16,308
                              
                              
                              
                              —Payments
      on capital lease obligations
                              
                              
                              (632
                              )
                              
                              
                              (472
                              )Net
      proceeds from the exercise of stock options
                              
                              
                              14
                              
                              
                              
                              79Net
      cash used by continuing financing activities
                              
                              
                              (2,071
                              )
                              
                              
                              (1,095
                              )Cash
      flow of discontinued operations:Cash
      used by operating activities
                              
                              
                              (3,361
                              )
                              
                              
                              (895
                              )Net
      cash provided (used) by investing activities
                              
                              
                              669
                              
                              
                              
                              (68
                              )Net
      cash used by discontinued operations
                              
                              
                              (2,692
                              )
                              
                              
                              (963
                              )Effect
      of exchange rate changes
                              
                              
                              13
                              
                              
                              
                              (390
                              )Net
      (decrease) increase in cash and cash equivalents
                              
                              
                              (2,502
                              )
                              
                              
                              1,190Cash
      and cash equivalents at beginning of year
                              
                              
                              2,837
                              
                              
                              
                              1,647Cash
      and cash equivalents at end of year
                              
                              $
                              335
                              
                              
                              $
                              2,837
  The
accompanying notes are an integral part of the consolidated financial
statements.
 32
 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 $83 and $27 at September 30, 2008 and 2007, respectively.
  33


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




2008
                  
                  
                  2007Opening
      balance
                  
                  $
                  27
                  
                  
                  $
                  270Charged
      to expense
                  
                  
                  137
                  
                  
                  
                  94Accounts
      written off
                  
                  
                  (2
                  )
                  
                  
                  (54
                  )Recoveries
                  
                  
                  (79
                  )
                  
                  
                  (283
                  )Ending
      balance
                  
                  $
                  83
                  
                  
                  $
                  27




Our cash
and cash equivalents, accounts receivable, accounts payable and certain other
accrued liabilities are all short-term in nature and their carrying amounts
approximate fair value. We have borrowings with fixed rates for up to three
years. The carrying value of our fixed rate debt also approximates its fair
value.




(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 $2,752 in fiscal 2008 and $3,153 in fiscal 2007. Expenditures for
maintenance and repairs are expensed as incurred.





Property
and equipment, net, as of September 30, 2008 and 2007 consisted of the
following:





2008
                    
                    
                    2007Land and improvements
                    
                    $
                    497
                    
                    
                    $
                    453Buildings and improvements
                    
                    
                    21,318
                    
                    
                    
                    20,745Machinery and equipment
                    
                    
                    20,456
                    
                    
                    
                    21,048Office
      furniture and fixtures
                    
                    
                    992
                    
                    
                    
                    1,306Construction
      in progress
                    
                    
                    149
                    
                    
                    
                    7943,412
                    
                    
                    
                    43,631Less:  accumulated
      depreciation
                    
                    
                    (20,277
                    )
                    
                    
                    (20,704
                    )Net property and equipment
                    
                    $
                    23,135
                    
                    
                    $
                    22,927




(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.




Goodwill
and other indefinite lived intangible assets, collectively referred to as
"indefinite lived assets," are tested annually for impairment, and more
frequently if events and circumstances indicate that the asset might be
impaired. An impairment loss is recognized to the extent that the carrying
amount exceeds the asset's fair value.  At September 30, 2008,
recorded goodwill was $1,855, and the net balance of other intangible assets was
$144.




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.




34


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.




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
carrying amount of goodwill at both September 30, 2008 and 2007 was
$1,855.  The components of intangible assets subject to amortization
are as follows:




September
      30, 2008Weighted
                              average life
                              (years)
                            
                            
                            Gross Carrying
      Amount
                            
                            
                            Accumulated
                              AmortizationFDA
      compliant facility
                            
                            
                            10
                            
                            
                            $
                            302
                            
                            
                            $
                            158Methodologies
                            
                            
                            5
                            
                            
                            
                            180
                            
                            
                            
                            180Volunteer
      database
                            
                            
                            5
                            
                            
                            
                            —
                            
                            
                            
                            —Customer
      relationships
                            
                            
                            5
                            
                            
                            
                            359
                            
                            
                            
                            359$
                            841
                            
                            
                            $
                            697September
      30, 2007Weighted
                              average life
                              (years)
                            
                            
                            Gross Carrying
      Amount
                            
                            
                            Accumulated
                              AmortizationFDA
      compliant facility
                            
                            
                            10
                            
                            
                            $
                            402
                            
                            
                            $
                            171Methodologies
                            
                            
                            5
                            
                            
                            
                            180
                            
                            
                            
                            171Volunteer
      database
                            
                            
                            5
                            
                            
                            
                            326
                            
                            
                            
                            280Customer
      relationships
                            
                            
                            5
                            
                            
                            
                            359
                            
                            
                            
                            341$
                            1,267
                            
                            
                            $
                            963





Amortization
expense for intangible assets for fiscal years ended September 30, 2008 and
2007 was $215 and $170 respectively. The following table provides information
regarding estimated amortization expense for the next five fiscal
years:





2009
                  
                  $
                  302010
                  
                  
                  302011
                  
                  
                  302012
                  
                  
                  302013
                  
                  
                  24




(h)
            Advertising
      Expense




We
expense advertising costs as incurred. Advertising expense was $201 and $35 for
the years ended September 30, 2008 and 2007, respectively.  The
increase stems primarily from increased sales, marketing and promotional efforts
in fiscal 2008.




(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, in accordance with Financial Accounting Standard
No. 123 (Revised).  Our policy is to recognize expense for awards
subject to graded vesting using the straight-line attribution method, 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.




35




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, 2008 and 2007 was $592 and $304
with related tax benefits of $154 and $96, respectively.




(j)
            Income
      Taxes




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




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




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.




(k)
            New
      Accounting Pronouncements




We
adopted the following pronouncement for periods beginning October 1,
2007.




Effective
October 1, 2007, we adopted the provisions of FIN 48.  This authoritative
interpretation clarified and standardized the manner by which companies are
required to account for uncertain income tax positions. Under the guidance of
FIN 48, we may recognize the tax benefit from an uncertain tax position only if
it is more likely than not to be sustained upon regulatory examination based on
the technical merits of the position. The amount of the 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. On October 1, 2007, we
recorded a $102 reduction in tax liability for uncertain income tax positions,
which was accounted for as an increase to retained earnings, for the cumulative
effect change of adopting FIN 48. The adoption amount was adjusted from our
first quarter filing. See Note 8 for additional detail.




(l)
            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. Our actual results could differ from those
estimates.




36


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.




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 30,2008
                          
                          
                          2007Basic
      net income per share from continuing operations:Net
      income applicable to common shareholders
                          
                          $
                          495
                          
                          
                          $
                          1,572Weighted
      average common shares outstanding
                          
                          
                          4,914
                          
                          
                          
                          4,909Basic
      net income per share from continuing operations
                          
                          $
                          0.10
                          
                          
                          $
                          0.32Diluted
      net income per share from continuing operations:Diluted
      net income applicable to common shareholders
                          
                          $
                          495
                          
                          
                          $
                          1,572Weighted
      average common shares outstanding
                          
                          
                          4,914
                          
                          
                          
                          4,909Dilutive
      stock options/shares
                          
                          
                          54
                          
                          
                          
                          51Diluted
      weighted average common shares outstanding
                          
                          
                          4,968
                          
                          
                          
                          4,960Diluted
      net income per share from continuing operations
                          
                          $
                          0.10
                          
                          
                          $
                          0.32




At
September 30, 2008 and 2007, we had 700 and 564 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:




2008
                  
                  
                  2007Raw
      materials
                  
                  $
                  1,748
                  
                  
                  $
                  1,480Work
      in progress
                  
                  
                  234
                  
                  
                  
                  273Finished
      goods
                  
                  
                  202
                  
                  
                  
                  224$
                  2,184
                  
                  
                  $
                  1,977





37


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 the current
and prior fiscal periods.  The loss from discontinued operations
reflects the operating loss of the CPRU through the sale date adjusted for
changes in estimates used to calculate the loss on disposal.  The
remaining estimated cash expenditures related to this unit are recorded as
current liabilities of discontinued operations, since they are expected to be
paid in 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.  The CPRU was previously included in our Services
segment.




In the
fourth quarter of fiscal 2008, we adjusted estimates from the sale date that
were included in the loss on disposal for actual expenses
incurred.  This resulted in a $43 increase to the loss on
disposal.




Condensed
Statements of Operations from Discontinued Operations




(in
      thousands)
                              
                              Year
      Ended
                                September
      30,2008
                              
                              
                              2007Net
      Sales
                              
                              $
                              2,192
                              
                              
                              $
                              5,492Loss
      before income taxes and disposal
                              
                              
                              (2,811
                              )
                              
                              
                              (1,095
                              )Loss
      on disposal
                              
                              
                              (474
                              )
                              
                              
                              —Loss
      from operations before tax benefit
                              
                              
                              (3,285
                              )
                              
                              
                              (1,095
                              )Income
      tax benefit
                              
                              
                              1,301
                              
                              
                              
                              449Net
      loss
                              
                              $
                              (1,984
                              )
                              
                              $
                              (646
                              )




Summary
Balance Sheet of Discontinued Operations





(in
      thousands)
                  
                  September 30,
                    2008Receivables,
      net of allowance for doubtful accounts
                  
                  $
                  346Other
      current assets
                  
                  
                  283Total
      assets
                  
                  $
                  629Accounts
      payable, accrued liabilities and other liabilities
                  
                  
                  41Equity
                  
                  
                  588Total
      liabilities and equity
                  
                  $
                  629




38






6.  LEASE
ARRANGEMENTS




The total
amount of equipment capitalized under capital lease obligations as of September
30, 2008 and 2007 was $3,884 and $2,739, respectively. Accumulated amortization
on capital leases at September 30, 2008 and 2007 was $1,338 and $825,
respectively. Amortization of assets acquired through capital leases is included
in depreciation expense.




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, 2008 are as follows:





Principal
                                  
                                  Interest
                                  
                                  Total2009
                                  
                                  $
                                  720
                                  
                                  $
                                  248
                                  
                                  $
                                  9682010
                                  
                                  
                                  650
                                  
                                  
                                  176
                                  
                                  
                                  8262011
                                  
                                  
                                  366
                                  
                                  
                                  113
                                  
                                  
                                  4792012
                                  
                                  
                                  279
                                  
                                  
                                  63
                                  
                                  
                                  3422013
                                  
                                  
                                  148
                                  
                                  
                                  12
                                  
                                  
                                  160$
                                  2,163
                                  
                                  $
                                  612
                                  
                                  $
                                  2,775




We lease
office space and equipment under noncancelable operating leases that terminate
at various dates through 2013, with the new UK building lease expiring in 2023.
Certain of these leases contain renewal options. Total rental expense under
these leases was $1,609 and $2,265 in fiscal 2008 and 2007,
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.  For the final quarter of 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, 2008 are as follows:




2009
                        
                        $
                        4662010
                        
                        
                        4202011
                        
                        
                        4112012
                        
                        
                        4082013
                        
                        
                        405After
      2013
                        
                        
                        3,257$
                        5,367




[Remainder
of page intentionally left blank.]




39




7.  DEBT
ARRANGEMENTS




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




2008
                            
                            
                            2007Mortgage
      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.
                            
                            $
                            4,294
                            
                            
                            $
                            4,445Mortgage
      note payable to a bank, payable in monthly principal and interest
      installments of $19. The net interest rate is 5.61%. Collateralized by
      underlying property. Due February, 2011.
                            
                            
                            1,623
                            
                            
                            
                            1,735Mortgage
      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.
                            
                            
                            1,967
                            
                            
                            
                            2,025Note
      payable to a bank, payable in monthly principal and interest installments
      of $9.  Currently, the net interest rate is 6.1%. Collateralized
      by West Lafayette and Evansville properties. Due December,
      2010.
                            
                            
                            1,322
                            
                            
                            
                            —Convertible
      subordinated 6% notes payable due January 1, 2008. Interest payable in
      arrears on the 15th of January and July after June 1,
2005.
                            
                            
                            —
                            
                            
                            
                            4,000Subordinated
      10% notes payable due October 1, 2007.
                            
                            
                            —
                            
                            
                            
                            477$
                            9,206
                            
                            
                            $
                            12,682Less
      current portion
                            
                            
                            491
                            
                            
                            
                            4,821$
                            8,715
                            
                            
                            $
                            7,861





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




2009
                      
                      $
                      4912010
                      
                      
                      5242011
                      
                      
                      2,7272012
                      
                      
                      3062013
                      
                      
                      5,158$
                      9,206





Cash interest payments of $872 and $869
were made in 2008 and 2007, respectively.




40




On
December 18, 2007, we entered into a loan agreement with Regions Bank
(“Regions”) under which Regions loaned us $1,400 under a term loan maturing
December 18, 2010. Interest on the loan is equal to LIBOR plus 215 basis points
and requires monthly payments of approximately $9 plus interest, currently at
6.1%. The loan is collateralized by real estate at the Company’s West Lafayette
and Evansville, Indiana locations. Regions also holds the mortgage debt on these
facilities as described previously. We used a portion of the proceeds of the
loan and existing cash on hand to repay our subordinated debt of approximately
$4,500 during the first quarter of the current fiscal year.  We
entered into an interest rate swap agreement with respect to this loan to fix
the interest rate at 6.1%.  We only entered into this derivative
transaction to hedge interest rate risk of this debt obligation and not to
speculate on interest rates.  The fair value of the swap is not
material to the financial statements.




Subordinated
Debt




In
connection with an acquisition in fiscal 2003, we issued 10% subordinated notes
of $1.8 million. The outstanding principal on these notes was $477 at September
30, 2007. We made the final principal payment of $477, which was included in
current portion of long-term debt at September 30, 2007, and interest payment of
$48 in October, 2007.




In
connection with another acquisition in fiscal 2003, we issued $4.0 million of 6%
convertible notes payable, including $500 payable to a current director of the
Company. The remaining outstanding principal on these notes
was  $4,000 at September 30, 2007. We made the final principal payment
of $4,000, which was included in current portion of long-term debt at September
30, 2007, in January, 2008.




Revolving
Line of Credit




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




Our
Agreement limits outstanding borrowings to the “borrowing base,” as defined in
the Agreement, up to a maximum available amount of $5,000. As of September 30,
2008, we had $4,448 of available total borrowing capacity of which $2,023 was
outstanding. Borrowings bear interest at a variable rate based on either (a) the
London Interbank Offer Rate (LIBOR) or (b) a base rate determined by the bank’s
prime rate, in either case, plus an applicable margin, as defined in the
Agreement. The applicable margin for borrowings under the line of credit ranges
from 0.00% to 0.50% for base rate borrowings and 1.50% to 3.00% for LIBOR
borrowings, subject to adjustment based on the average availability under the
line of credit. We also pay commitment fees on the unused portions of the line
of credit ranging from 0.20% - 0.30%. All interest and fees are paid
monthly.




The covenants in our revolving line of
credit require that we maintain certain ratios of interest-bearing indebtedness
to EBITDA and net cash flow to debt servicing requirements, which may restrict
the amount we can borrow to fund future operations, acquisitions and capital
expenditures.Additionally, 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 Agreement and the Regions loans both contain
cross-default provisions.  At September 30, 2008, we were in breach of
our tangible net worth requirement, which was subsequently waived and the
requirement amended as of December 19, 2008.




41




8.  INCOME
TAXES




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





2008
                    
                    
                    2007Long-term
      deferred tax liabilities:Tax
      over book depreciation
                    
                    $
                    770
                    
                    
                    $
                    495Lower
      tax basis on assets of acquired company
                    
                    
                    428
                    
                    
                    
                    (101
                    )Domestic
      net operating loss carryforward
                    
                    
                    (641
                    )
                    
                    
                    —Stock
      options expense
                    
                    
                    (213
                    )
                    
                    
                    (57
                    )Total
      long-term deferred tax liabilities
                    
                    $
                    334
                    
                    
                    $
                    337Current
      deferred tax assets:Inventory
      pricing
                    
                    $
                    128
                    
                    
                    $
                    176Accrued compensation and vacation
                    
                    
                    244
                    
                    
                    
                    410Accrued
      expenses and other - net
                    
                    
                    73
                    
                    
                    
                    184Foreign
      tax credit carryover
                    
                    
                    71
                    
                    
                    
                    120Deferred
      gain on sale/leaseback
                    
                    
                    —
                    
                    
                    
                    7Foreign
      net operating loss
                    
                    
                    540
                    
                    
                    
                    326Total
      current deferred tax assets
                    
                    $
                    1,056
                    
                    
                    $
                    1,223Valuation
      allowance for deferred tax assets
                    
                    
                    (540
                    )
                    
                    
                    (326
                    )Net
      deferred tax assets
                    
                    $
                    516
                    
                    
                    $
                    897Net
      deferred tax (assets) liabilities
                    
                    $
                    (172
                    )
                    
                    $
                    (560
                    )




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





2008
                  
                  
                  2007Current:Federal
                  
                  $
                  (505
                  )
                  
                  $
                  875State
                  
                  
                  144
                  
                  
                  
                  224Foreign
                  
                  
                  —
                  
                  
                  
                  (15
                  )Total
      Current
                  
                  $
                  (361
                  )
                  
                  $
                  1,084Deferred:Federal
                  
                  $
                  341
                  
                  
                  $
                  (453
                  )State
                  
                  
                  45
                  
                  
                  
                  (58
                  )Foreign
                  
                  
                  2
                  
                  
                  
                  —Total
      deferred
                  
                  $
                  388
                  
                  
                  $
                  (511
                  )$
                  27
                  
                  
                  $
                  573




42




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




2008
                                                                  
                                                                  
                                                                  2007Statutory
      federal income tax rate
                                                                  
                                                                  
                                                                  34.0
                                                                  %
                                                                  
                                                                  
                                                                  34.0
                                                                  %Increases
      (decreases):Nondeductible
      expenses
                                                                  
                                                                  
                                                                  5.0
                                                                  
                                                                  
                                                                  
                                                                  4.4Tax
      benefit of foreign sales
                                                                  
                                                                  
                                                                  0.0
                                                                  
                                                                  
                                                                  
                                                                  (0.4
                                                                  )State
      income taxes, net of federal tax benefit
                                                                  
                                                                  
                                                                  10.0
                                                                  
                                                                  
                                                                  
                                                                  4.2Nontaxable
      foreign (gains) losses
                                                                  
                                                                  
                                                                  12.4
                                                                  
                                                                  
                                                                  
                                                                  (5.3
                                                                  )FIN
      48
                                                                  
                                                                  
                                                                  12.8
                                                                  
                                                                  
                                                                  
                                                                  0.0Other
                                                                  
                                                                  
                                                                  (1.4
                                                                  )
                                                                  
                                                                  
                                                                  2.572.8
                                                                  %
                                                                  
                                                                  
                                                                  39.4
                                                                  %




We have
not provided any U.S. income taxes on the undistributed earnings of our UK
subsidiary based upon our determination that such earnings will be indefinitely
reinvested. In the event these earnings are later distributed to the U.S., such
distributions could result in additional U.S. tax that may be offset, at least
in part by associated foreign tax credits.




In fiscal
2008 and 2007, our foreign operations generated income (loss) before income
taxes of ($666) and $405 respectively.  We have foreign net operating
loss carryforwards of $1,020 that have an indefinite life under current UK tax
law. Payments
made in 2008 and 2007 for income taxes amounted to $186 and $984,
respectively.




Effective
October 1, 2007, we adopted the provisions of FIN 48.  This authoritative
interpretation clarified and standardized the manner by which we are required to
account for uncertain income tax positions. Under the guidance of FIN 48, we may
recognize the tax benefit from an uncertain tax position only if it is more
likely than not to be sustained upon regulatory examination based on the
technical merits of the position. The amount of the 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. On October 1, 2007, we
recorded a $183 additional liability for uncertain income tax positions,
which was accounted for as a reduction to retained earnings, for the cumulative
effect change of adopting FIN 48. Upon
further analysis of our opening liability accounts. we determined that our
recorded liability on October 1, 2007 was $102 greater than our exposure for
uncertain tax positions. Accordingly. we revised our original adjustment and
recorded a reduction in tax liability of $285 and increase in retained earnings
to properly record our adoption of FIN 48. Management has determined this
adjustment is not material from amounts reflected in our Form 10-Q's filed for
the periods ending December 31, 2007, March 31, 2008 and June 30, 2008.
Accordingly, we have presented below a pro-forma table below reflecting the
originally reported and adjusted balances had the FIN 48 original entry been
posted correctly.




Q1
      2008
              
              
              
              Q2
      2008
              
              
              
              Q3
      2008Refundable
      income taxes
              
              $
              144
              
              
              $
              243
              
              
              $
              967Income
      tax accruals
              
              
              240
              
              
              
              240
              
              
              
              240Net
      tax receivable as originally reported
              
              
              (96
              )
              
              
              3
              
              
              
              727Net
      tax receivable as adjusted
              
              
              189
              
              
              
              288
              
              
              
              1,012Retained
      earnings as originally reported
              
              
              5,361
              
              
              
              5,224
              
              
              
              4,838Retained
      earnings as adjusted
              
              
              5,646
              
              
              
              5,509
              
              
              
              5,123




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




2008Beginning
      of year balance, October 1, 2007
                  
                  $
                  240Increases
      to tax positions in current year
                  
                  259Increases
      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




The
current year increase in our unrecognized tax liability is related to certain
state income tax issues.  Over the next twelve months, it is
reasonably possible that the uncertainty surrounding our reserve for uncertain
income tax positions will be resolved upon the conclusion of state tax audits.
Accordingly, if such resolutions are favorable, we would reduce the carrying
value of our reserve.  We recognize interest and/or penalties related to
income tax matters in income tax expense.   We did not have any
amounts accrued for interest and penalties at September 30, 2008.  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
2004.




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.




43




The
maximum number of common shares that may be granted under the Plan is 500
shares.  At September 30, 2008, 382 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:





2008
                      
                      
                      2007Risk-free
      interest rate
                      
                      
                      3.74
                      %
                      
                      
                      4.65
                      %Dividend
      yield
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %Volatility
      of the expected market price of the Company's common stock
                      
                      
                      44.00%-59.00
                      %
                      
                      
                      44.00%-63.00
                      %Expected
      life of the options (years)
                      
                      
                      7.0
                      
                      
                      
                      7.0




A summary
of our stock option activity and related information for the years ended
September 30, 2008 and 2007, respectively, is as follows (in thousands except
for share prices):




Options
                                                    (shares)
                                                  
                                                  
                                                  Weighted-
                                                    AverageExercise
                                                    Price
                                                  
                                                  
                                                  Weighted-
                                                    Average Grant
                                                    Date Fair Value
                                                  
                                                  
                                                  Weighted-Average
                                                    Remaining
                                                    Contractual Life
                                                    (Years)
                                                  
                                                  
                                                  Aggregate
                                                    Intrinsic
                                                    ValueOutstanding
      - October 1, 2006
                                                  
                                                  
                                                  404
                                                  
                                                  
                                                  $
                                                  4.98Exercised
                                                  
                                                  
                                                  (17
                                                  )
                                                  
                                                  $
                                                  4.48Granted
                                                  
                                                  
                                                  305
                                                  
                                                  
                                                  $
                                                  6.98
                                                  
                                                  
                                                  $
                                                  3.58Terminated
                                                  
                                                  
                                                  (77
                                                  )
                                                  
                                                  $
                                                  4.91Outstanding
      - September 30, 2007
                                                  
                                                  
                                                  615
                                                  
                                                  
                                                  $
                                                  6.00
                                                  
                                                  
                                                  $
                                                  3.51
                                                  
                                                  
                                                  
                                                  7.9
                                                  
                                                  
                                                  $
                                                  909Outstanding
      - October 1, 2007
                                                  
                                                  
                                                  615
                                                  
                                                  
                                                  $
                                                  6.00Exercised
                                                  
                                                  
                                                  (6
                                                  )
                                                  
                                                  $
                                                  4.94Granted
                                                  
                                                  
                                                  189
                                                  
                                                  
                                                  $
                                                  6.40
                                                  
                                                  
                                                  $
                                                  3.67Terminated
                                                  
                                                  
                                                  (44
                                                  )
                                                  
                                                  $
                                                  6.74Outstanding
      - September 30, 2008
                                                  
                                                  
                                                  754
                                                  
                                                  
                                                  $
                                                  6.06
                                                  
                                                  
                                                  $
                                                  3.50
                                                  
                                                  
                                                  
                                                  7.7
                                                  
                                                  
                                                  $
                                                  39Exercisable
      at September 30, 2008
                                                  
                                                  
                                                  305
                                                  
                                                  
                                                  $
                                                  5.37
                                                  
                                                  
                                                  $
                                                  3.31
                                                  
                                                  
                                                  
                                                  6.2
                                                  
                                                  
                                                  $
                                                  37





A summary
of non-vested options for the year ended September 30, 2008 is as
follows:





Number of
                          Shares
                        
                        
                        Weighted-
                          Average Grant
                          Date Fair ValueNon-vested
      options at October 1, 2007
                        
                        
                        418
                        
                        
                        $
                        3.71Granted
                        
                        
                        189
                        
                        
                        $
                        3.67Vested
                        
                        
                        (131
                        )
                        
                        $
                        3.54Forfeited
                        
                        
                        (27
                        )
                        
                        $
                        3.60Non-vested
      options at September 30, 2008
                        
                        
                        449
                        
                        
                        $
                        3.62




44




We
received$14 and $79
from the exercise of qualified employee stock options in fiscal 2008 and 2007,
respectively, for which no tax benefit was recognized.  The aggregate
intrinsic value of those shares exercised were $12 and $10, for the years ended
September 30, 2008 and 2007, respectively.  As of September 30, 2008,
our total unrecognized compensation cost related to non-vested stock options was
$1,057 and is expected to be recognized over a weighted-average service period
of 1.51 years.





The
following table summarizes outstanding and exercisable options as of
September 30, 2008 (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
                    
                    
                    
                    157
                    
                    
                    
                    4
      .65
                    
                    
                    $
                    4
      .35
                    
                    
                    
                    138
                    
                    
                    $
                    4
      .33$
                    4.59
      - 5.74
                    
                    
                    
                    252
                    
                    
                    
                    8
      .25
                    
                    
                    $
                    5
      .28
                    
                    
                    
                    92
                    
                    
                    $
                    5
      .53$
                    5.75
      - 8.79
                    
                    
                    
                    345
                    
                    
                    
                    8
      .73
                    
                    
                    $
                    7
      .41
                    
                    
                    
                    75
                    
                    
                    $
                    7
      .10




11.  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 2008 and 2007. Contribution expense was $293 and
$301 in fiscal 2008 and 2007, respectively.




[Remainder
of page intentionally left blank.]


45




12.  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.






(a)
            Operating
      Segments




Years Ended
                    September 30,2008
                  
                  
                  2007Revenue:Service
                  
                  $
                  32,921
                  
                  
                  $
                  30,559Product
                  
                  
                  8,776
                  
                  
                  
                  9,194$
                  41,697
                  
                  
                  $
                  39,753Operating
      income from continuing operations:Service
                  
                  $
                  2,139
                  
                  
                  $
                  2,815Product
                  
                  
                  655
                  
                  
                  
                  670$
                  2,794
                  
                  
                  $
                  3,485Corporate
      Expenses
                  
                  
                  971
                  
                  
                  
                  891Income
      from continuing operations before income taxes
                  
                  $
                  1,823
                  
                  
                  $
                  2,594




[Remainder
of page intentionally left blank.]


46




Years Ended
                    September 30,2008
                  
                  
                  2007Identifiable
      assets:Service
                  
                  $
                  23,594
                  
                  
                  $
                  23,979Product
                  
                  
                  9,771
                  
                  
                  
                  9,258Corporate
                  
                  
                  6,353
                  
                  
                  
                  8,800$
                  39,718
                  
                  
                  $
                  42,037Goodwill,
      net:Service
                  
                  $
                  1,481
                  
                  
                  $
                  1,481Product
                  
                  
                  374
                  
                  
                  
                  374$
                  1,855
                  
                  
                  $
                  1,855Intangible
      assets, net:Service
                  
                  $
                  144
                  
                  
                  $
                  304Product
                  
                  
                  —
                  
                  
                  
                  —$
                  144
                  
                  
                  $
                  304Depreciation
      and amortization:Service
                  
                  $
                  2,653
                  
                  
                  $
                  3,083Product
                  
                  
                  360
                  
                  
                  
                  236$
                  3,013
                  
                  
                  $
                  3,319Capital
      Expenditures:Service
                  
                  $
                  1,505
                  
                  
                  $
                  691Product
                  
                  
                  208
                  
                  
                  
                  119$
                  1,713
                  
                  
                  $
                  810




(b)
            Geographic
      Information




Years Ended
                    September 30,2008
                  
                  
                  2007Sales
      to External Customers:North
      America
                  
                  $
                  35,866
                  
                  
                  $
                  33,928Pacific
      Rim
                  
                  
                  650
                  
                  
                  
                  700Europe
                  
                  
                  4,671
                  
                  
                  
                  4,562Other
                  
                  
                  510
                  
                  
                  
                  563$
                  41,697
                  
                  
                  $
                  39,753Long-lived
      Assets:North
      America
                  
                  $
                  24,170
                  
                  
                  $
                  24,729Europe
                  
                  
                  1,233
                  
                  
                  
                  808$
                  25,403
                  
                  
                  $
                  25,537


47




(c)
            Major
      Customers




In 2008
and 2007, Pfizer accounted for approximately 7.4% and 5.8%, respectively, of our
total revenues from continuing operations and 10.0% and 5.5% of total trade
accounts receivable from continuing operations at September 30, 2008 and 2007,
respectively.




13.  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.




Included
in fiscal 2007 operating expenses is approximately $360 of severance costs for
former officers of the Company as agreed upon on September 28, 2007 in
connection with their resignations.  Approximately $88 was paid to
each of Dr. and Mrs. Kissinger on October 5, 2007, with the remaining paid in
six equal installments November 2007 through April 2008.




14.  CONSOLIDATED
QUARTERLY FINANCIAL DATA (UNAUDITED)




The
following is a summary of the unaudited quarterly results of operations for
fiscal years 2008 and 2007 (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
                                      Quarter2008Total
      Revenue
                                    
                                    $
                                    10,565
                                    
                                    
                                    $
                                    10,301
                                    
                                    
                                    $
                                    11,447
                                    
                                    
                                    $
                                    9,384Gross
      Profit
                                    
                                    
                                    4,086
                                    
                                    
                                    
                                    3,959
                                    
                                    
                                    
                                    4,316
                                    
                                    
                                    
                                    2,972Net
      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
                                    )2007Total
      Revenue
                                    
                                    $
                                    9,880
                                    
                                    
                                    $
                                    9,397
                                    
                                    
                                    $
                                    10,865
                                    
                                    
                                    $
                                    9,611Gross
      Profit (a)
                                    
                                    
                                    3,635
                                    
                                    
                                    
                                    2,895
                                    
                                    
                                    
                                    4,083
                                    
                                    
                                    
                                    3,555Net
      income from continuing operations (a)
                                    
                                    
                                    781
                                    
                                    
                                    
                                    16
                                    
                                    
                                    
                                    567
                                    
                                    
                                    
                                    208Basic
      net income per share from continuing operations(a)
                                    
                                    
                                    0.16
                                    
                                    
                                    
                                    0.00
                                    
                                    
                                    
                                    0.12
                                    
                                    
                                    
                                    0.04Diluted
      net income per share from continuing   operations(a)
                                    
                                    
                                    0.16
                                    
                                    
                                    
                                    0.00
                                    
                                    
                                    
                                    0.12
                                    
                                    
                                    
                                    0.04





(a)  Amounts
have been retrospectively adjusted for our change in the fourth quarter of 2007
from the last-in, first-out method of inventory accounting to the first-in,
first-out method.


48




MANAGEMENT’S
REPORT ON CONSOLIDATED FINANCIAL STATEMENTS


AND
INTERNAL CONTROL




The
management of Bioanalytical Systems, Inc. ("BASI") has prepared, and is
responsible for, BASI’s consolidated financial statements and related footnotes.
These consolidated financial statements have been prepared in conformity with
U.S. generally accepted accounting principles.




BASI’s
management is responsible for establishing and maintaining effective internal
control over financial reporting and for assessing the effectiveness of internal
control over financial reporting. The purpose of this system of internal
accounting controls over financial reporting is to provide reasonable assurance
that assets are safeguarded, that transactions are executed in accordance with
management's authorization and are properly recorded, and that accounting
records may be relied upon for the preparation of accurate and complete
consolidated financial statements. The design, monitoring and revision of
internal accounting control systems involve, among other things, management's
judgment with respect to the relative cost and expected benefits of specific
control measures.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.




During
the preparation of the consolidated financial statements for the year ended
September 30, 2008, we identified a difference in the amounts of deferred and
refundable income taxes in our books and records as compared to the amounts
included in our income tax returns. To verify the amount and the nature of the
difference, we elected to delay the filing of our annual report on Form 10-K. We
concluded that the difference was related to an overstatement of
our unrecognized tax liability and the related error in recording
our liability for uncertain tax positions upon our adoption of FIN 48
on October 1, 2007. The failure to identify this difference and resulting
error in adopting FIN 48 through our normal financial statement
preparation process caused us to conclude that we had a material weakness
in our accounting for income taxes and that our internal controls over financial
reporting were not effective as of September 30, 2008. To prevent a recurrence
of similar errors in future years, we plan to implement in 2009
commercially available software that will accurately maintain and track the
differences between financial reporting and tax return
reporting.




BASI’s
management concluded that its internal control over financial reporting as of
September 30, 2008 was not effective and adequate to accomplish the objectives
described above.  Management's assessment was based upon the criteria
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. BASI’s consolidated financial
statements have been audited by an independent registered public accounting
firm, Crowe Horwath LLP, as stated in their report which is included elsewhere
herein.




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.





By:  /s/  Richard
M. Shepperd





Richard
M. Shepperd


President
and Chief Executive Officer





By:  /s/  Michael
R. Cox





Michael
R. Cox


Vice
President, Finance and Administration,


Chief
Financial Officer and Treasurer


49


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, 2008 and 2007, 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, 2008 and 2007, 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, 2009


50




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 under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in 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, 2008,
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




During
the fourth quarter of fiscal 2008, we migrated the financial accounting for
Bioanalytical projects for our West Lafayette Bioanalytical services from an
internally developed system to our enterprise resource management system
(“ERP”).  This migration was the final major business unit to
implement our ERP system initiated in fiscal 2005.  We believe our ERP
system significantly reduces our risk of a material error in our financial
statements.
  During
the preparation of the consolidated financial statements for the year ended
September 30, 2008, we identified a difference in the amounts of deferred and
refundable income taxes in our books and records as compared to the amounts
included in our income tax returns. To verify the amount and the nature of the
difference, we elected to delay the filing of our annual report on Form 10-K. We
concluded that the difference was related to an overstatement of
our unrecognized tax liability and the related error in recording
our liability for uncertain tax positions upon our adoption of FIN 48
on October 1, 2007. The failure to identify this difference and resulting error
in adopting FIN 48 through our normal financial statement preparation
process caused us to conclude that we had a material weakness in our accounting
for income taxes and that our internal controls over financial reporting were
not effective as of September 30, 2008. To prevent a recurrence of similar
errors in future years, we plan to implement in 2009 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 the fourth quarter of fiscal 2008 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
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, our management concluded that our
internal control over financial reporting was not effective as of September 30,
2008 due to the
difference identified in the amounts of deferred and refundable income taxes in
our books and records as compared to the amounts included in our income tax
returns. Toverify the amount and the nature of the difference, we elected to delay
the filing of our annual report on Form 10-K. We concluded that the difference
was related to an overstatement of our unrecognized tax liability and the
related error in recording our liability for uncertain tax positions upon our
adoption of FIN 48 on October 1. 2007. The failure to identify this error
through our normal financial statement preparation process caused us to conclude
that we had a material weakness in our accounting for income taxes and that our
internal controls over financial reporting were not effective as of September
30. 2008. To prevent a recurrence of similar errors in future years, we plan to
implement in 2009 commercially available that will accurately maintain and track
the difference between financial reporting and tax return
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.




For
additional information, please see "Management's Report on Consolidated
Financial Statements and Internal Control" included in this Annual
Report.




ITEM
9B-OTHER INFORMATION




As
previously discussed in Note 7, we were in breach of our tangible net worth
ratio requirement as part of the covenants in our loan agreements with National
City Bank as of September 30, 2008.  As of December 19, 2008, the bank
had waived the breach and amended this requirement as evidenced in Exhibit 10.9
filed with this report 10-K.


51




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, 2008. Except as indicated in the following
paragraphs, the principal occupations of these persons has 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 2009 Annual Meeting.




Name
              
              Age
              
              PositionWilliam
      E. Baitinger
              
              75
              
              DirectorDavid
      W. Crabb
              
              55
              
              DirectorLeslie
      B. Daniels
              
              61
              
              DirectorLarry
      S. Boulet
              
              62
              
              DirectorRichard
      M. Shepperd
              
              68
              
              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.




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.




Larry S. Boulethas 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 the immediate past Chairman of the Board.  He holds a Bachelor of
Science degree in Accounting from Indiana State University.




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.


52




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 and Leslie B. Daniels 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.




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.]


53




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 26 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.  (incorporated by reference to Exhibit 3.2 to Form 10-Q for
      the quarter ended March 31, 2007).





(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).  54
  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 (filed
      herewith).





10.10
            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).





10.11
            Loan
      Agreement between Bioanalytical Systems, Inc. and Union Planters Bank,
      dated October 29, 2002 (incorporated by reference to Exhibit 10.15 of Form
      10-K for the fiscal year ended September 30,
  2002).





10.12
            Real
      Estate Mortgage and Security Agreement between Bioanalytical Systems, Inc.
      and Union Planters Bank, dated October 29, 2002 (incorporated by reference
      to Exhibit 10.16 of Form 10-K for the fiscal year ended September 30,
      2002).





10.13
            Real
      Estate Mortgage and Security Agreement between Bioanalytical Systems, Inc.
      and Union Planters Bank, dated October 29, 2002 (incorporated by reference
      to Exhibit 10.17 of Form 10-K for the fiscal year ended September 30,
      2002).





10.14
            Term
      Loan Promissory Note made by Bioanalytical Systems, Inc. in favor of Union
      Planters Bank, dated October 29, 2002 (incorporated by reference to
      Exhibit 10.18 of Form 10-K for the fiscal year ended September 30,
      2002).





10.15
            Promissory
      Note made by Bioanalytical Systems, Inc. in favor of Union Planters Bank,
      dated October 29, 2002 (incorporated by reference to Exhibit 10.19 of Form
      10-K for the fiscal year ended September 30,
  2002).





10.16
            Form
      of Grant of non-qualified stock options dated August 1, 2005 to Edward M.
      Chait (*) (incorporated by reference to Exhibit 10.24 to Form 10-K for the
      fiscal year ended September 30,
2005).





10.17
                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).10.18
                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).





10.19
            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).





55





Number
            
            Description of Exhibits10.20
            First
      Amendment to Lease by and between 300 W. Fayette Street, LLC and
      Bioanalytical Systems, Inc., entered into on May 20, 2007 (incorporated by
      reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended June
      30, 2007).10.21
            Lease
      Agreement by and between 300 W. Fayette Street, LLC and Bioanalytical
      Systems, Inc., entered into on May 20, 2007 (incorporated by reference to
      Exhibit 10.4 to Form 10-Q for the fiscal quarter ended June 30,
      2007).





10.22
            Severance
      Agreement and Release of All Claims, dated September 28, 2007, between
      Candice B. Kissinger and Bioanalytical Systems, Inc. (*) (incorporated by
      reference to Exhibit 10.1 to Form 8-K filed October 4,
    2007)





10.23
            Severance
      Agreement and Release of All Claims, dated September 28, 2007, between
      Peter T. Kissinger, PhD. and Bioanalytical Systems, Inc. (*) (incorporated
      by reference to Exhibit 10.2 to Form 8-K filed October 4,
      2007)





10.24
            License
      Agreement, dated September 28, 2007, between Phlebotics, Inc. and
      Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 10.3 to
      Form 8-K filed October 4, 2007).





10.25
            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).





10.26
            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).10.27
            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).





10.28
            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).10.29
            Severance
      Agreement and Release of All Claims between Edward M. Chait and
      Bioanalytical Systems, Inc., dated November 7, 2008 (filed
      herewith).10.30
            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).10.31
            Form
      of Bioanalytical Systems, Inc. 2008 Director and Employee Stock Option
      Plan (*) (filed herewith).10.32
            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).10.33
            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).10.34
            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).  56
  Number
            
            Description of Exhibits10.35
            Employee
      Incentive Stock Option Agreement between Jon Brewer and Bioanalytical
      Systems, Inc., dated October 1, 2008 (filed herewith).10.36
            Employee
      Incentive Stock Option Agreement between Anthony S. Chilton and
      Bioanalytical Systems, Inc., dated December 1, 2008 (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).





(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.


57




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)Date:  January
      13, 2009
              By:  /s/  Richard M.
      ShepperdRichard
      M. Shepperd
                President
      and Chief Executive OfficerDate:  January
      13, 2009
              By:  /s/  Michael
      R. CoxMichael
      R. Cox
                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
              
              President and Chief Executive Officer
              
              January
      13, 2009Richard
      M. Shepperd
              
              (Principal
      Executive Officer)/s/  Michael R.
    Cox
              
              Vice
      President, Finance and
              
              January
      13, 2009Michael
      R. Cox
              
              Administration,
      Chief FinancialOfficer and Treasurer (PrincipalFinancial and
      Accounting Officer)/s/  William E.
      Baitinger
              
              Director
              
              January
      13, 2009William
      E. Baitinger/s/  David W.
    Crabb
              
              Director
              
              January
      13, 2009David
      W. Crabb/s/  Leslie B.
      Daniels
              
              Director
              
              January
      13, 2009Leslie
      B. Daniels/s/  Larry S.
    Boulet
              
              Director
              
              January
      13, 2009Larry
      S. Boulet


58