UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q10-Q/A

(Mark One)

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,June 30, 2006

OR

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ________________________

For the transition period from ___________ to _____________


Commission File Number 0-23357

BIOANALYTICAL SYSTEMS, INC.
(Exact name of the registrant as specified in its charter)

BIOANALYTICAL SYSTEMS, INC.
(Exact name of the registrant as specified in its charter)

INDIANA
(State or other jurisdiction of incorporation or organization)

2701 KENT AVENUE
WEST LAFAYETTE, IN
(Address of principal executive offices)

(765) 463-4527
(Registrant's telephone number, including area code)		35-1345024
(I.R.S. Employer Identification No.)


47906
(Zip code)

(765) 463-4527
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



YES            NO   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer           Accelerated Filer           Non-accelerated Filer  

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



YES            NO   

As of April 30,July 31, 2006, 4,892,127 common shares of the registrant were outstanding.

PAGE  
NUMBER

PAGE
NUMBER

PART IFINANCIAL INFORMATION

Item 1Condensed Consolidated Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of March 31,June 30, 2006
and
September 30, 20053

Condensed Consolidated Statements of Operations for the
Three
Months and SixNine Months Ended March 31,June 30, 2006 and 20054

Condensed Consolidated Statements of Cash Flows for the Six
Nine Months
Ended March 31,June 30, 2006 and 20055

Notes to Condensed Consolidated Financial Statements6

Item 2Management's Discussion and Analysis of Financial Condition and
Results of Operations10 11

Item 3Quantitative and Qualitative Disclosures About Market Risk16 17

Item 4Controls and Procedures16 17


PART IIOTHER INFORMATION

Item 41ASubmission of Matters to Vote of Security HoldersRisk Factors17 18

Item 5Other Information18

Item 6Exhibits17 19

SIGNATURES18 20


2

PART I—Financial Information
Item 1.     Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)


June 30,
2006
 Sept. 30,
2005
March 31,
2006
 September 30,
2005
Assets            
Current assets:  
Cash and cash equivalents $1,038 $1,254  $777 $1,254 
Accounts receivable  
Trade  8,401  10,352   7,690  10,352 
Unbilled revenues and other  2,009  2,677   1,752  2,677 
Inventories  2,207  2,041   1,889  2,041 
Deferred income taxes  481  381   510  381 
Refundable income taxes  276  —   745  — 
Prepaid expenses  583  430   602  430 
Total current assets  14,995  17,135   13,965  17,135 
Property and equipment, net  27,009  26,565   26,325  26,565 
Goodwill  2,238  1,445   1,855  1,445 
Intangible assets, net  1,050  2,156   572  2,156 
Debt issue costs  265  280   254  280 
Other assets  268  257   264  257 
Total assets $45,825 $47,838  $43,235 $47,838 
Liabilities and shareholders' equity  
Current liabilities:  
Accounts payable $1,239 $1,681  $1,356 $1,681 
Accrued expenses  2,277  2,791   2,286  2,791 
Income Tax Payable  —  31 
Income Taxes Payable  —31
Customer advances  4,478  5,974   4,756  5,974 
Revolving line of credit  1,569  920   —  920 
Current portion of capital lease obligation  187  278   506  278 
Current portion of long-term debt  710  700   715  700 
Total current liabilities  10,460  12,375   9,619  12,375 
Capital lease obligation, less current portion  1,250  807   1,747  807 
Long-term debt, less current portion  8,370  8,579   8,278  8,579 
Subordinated debt, long-term  4,477  4,829   4,477  4,829 
Deferred income taxes  1,651  1,651   1,189  1,651 
Shareholders' equity:  
Preferred shares: Authorized shares - 1,000, 
Preferred shares: Authorized shares - 1,000 
Issued and outstanding shares - none  —  —   —  — 
Common shares: Authorized shares - 19,000, 
Issued and outstanding shares - 4,892 at March 31, 2006 
Common shares: Authorized shares - 19,000 
Issued and outstanding shares - 4,892 at June 30, 2006 
and 4,871 at September 30, 2005  1,182  1,177   1,182  1,177 
Additional paid-in capital  11,496  11,268   11,567  11,268 
Retained earnings  7,016  7,194   5,260  7,194 
Accumulated other comprehensive loss  (77) (42)  (84) (42)
Total shareholders' equity  19,617  19,597   17,925  19,597 
Total liabilities and shareholders' equity $45,825 $47,838  $43,235 $47,838 

See accompanying notes to condensed consolidated financial statements.




3

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)


Three Months Ended
March 31,
 Six Months Ended
March 31,
Three Months Ended
June 30,
 Nine Months Ended
June 30,
2006
2005
 2006
2005
2006
 2005
 2006
 2005
Service revenue  $10,053 $7,543 $17,592 $14,832   $7,956 $9,078 $25,548 $23,910 
Product revenue  2,364  1,596  4,669  4,001   2,082  2,226  6,751  6,226 
 
Total revenue  12,417  9,139  22,261  18,833   10,038  11,304  32,299  30,136 
Cost of service revenue  6,758  6,056  12,622  11,271   6,343  5,434  18,965  16,570 
Cost of product revenue  725  657  1,560  1,509   1,165  844  2,725  2,352 
 
Total cost of revenue  7,483  6,713  14,182  12,780   7,508  6,278  21,690  18,922 
Gross profit  4,934  2,426  8,079  6,053   2,530  5,026  10,609  11,214 
Operating expenses:  
Selling  680  626  1,413  1,202   625  718  2,038  1,919 
Research and development  201  173  639  392   350  261  989  653 
General and administrative  2,886  2,615  5,771  4,542   3,966  3,115  9,737  7,781 
 
Total operating expenses  3,767  3,414  7,823  6,136   4,941  4,094  12,764  10,353 
Operating income (loss)  1,167  (988) 256  (83)
Operating (loss) income  (2,411) 932  (2,155) 861 
Interest income  2  2  4  4   2  2  6  7 
Interest expense  (248) (257) (508) (532)  (272) (250) (780) (782)
Other expense  —  (28) —  (22)
Other income  —  78  —  56 
Gain on sale of property and equipment  —  34  —  21 
 
Income (loss) before income taxes  921  (1,271) (248) (633)  (2,681) 796  (2,929) 163 
Income taxes  383  (375) (70) (140)
Income tax (benefit) expense  (925) 440  (995) 300 
 
Net income (loss) $538 $(896)$(178)$(493) $(1,756)$356 $(1,934)$(137)
 
Net income (loss) per share:  
Basic $0.11 $(0.18)$(0.04)$(0.10) $(0.36)$0.07 $(0.40)$(0.03)
Diluted $0.11 $(0.18)$(0.04)$(0.10) $(0.36)$0.07 $(0.40)$(0.03)
Weighted common and common equivalent  
shares outstanding:  
Basic  4,875  4,870  4,873  4,870   4,892  4,871  4,879  4,870 
Diluted  4,971  4,870  4,873  4,870   4,892  5,020  4,879  4,870 

See accompanying notes to condensed consolidated financial statements.




4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


Nine Months Ended June 30,
Six Months Ended March 31,
2006
 2005
2006
 2005
Operating activities            
Net loss $(178)$(493) $(1,934)$(137)
Adjustments to reconcile net loss to net  
cash provided by operating activities:  
Depreciation and amortization  1,702  1,429   3,069  2,462 
Loss on sale of property and equipment  —  12 
Impairment of assets  1,100 
Gain on sale of property and equipment  —  (21)
Employee stock option expense  210  — 
Deferred income taxes  (100) (145)  (591) — 
Employee stock option expense  139  — 
Changes in operating assets and liabilities:  
Accounts receivable  2,619  (1,662)  3,587  (5,569)
Inventories  (166) (689)  152  (673)
Prepaid expenses and other assets  (175) (231)  (194) (100)
Accounts payable  (442) (466)  (325) (295)
Refundable income taxes  (307) (137)  (776) 211 
Accrued expenses  (514) 28   (505) (106)
Customer advances  (1,496) 1,317   (1,218) 3,522 
Net cash provided (used) by operating activities  1,082  (1,037)  2,575  (706)
Investing activities  
Capital expenditures  (1,332) (1,029)  (1,286) (1,631)
Proceeds from sale of property and equipment  45  5,866   45  5,887 
Net cash provided (used) by investing activities  (1,287) 4,837   (1,241) 4,256 
Financing activities  
Borrowings on line of credit  8,805  6,968   11,360  6,968 
Payments on line of credit  (8,156) (9,794)  (12,280) (9,794)
Exercise of stock options  94  5 
Payments on capital lease obligations  (168) (53)  (305) (113)
Proceeds from exercise of stock options  94  — 
Payments of long-term debt  (551) (621)  (638) (703)
Net cash provided (used) by financing activities  24  (3,500)
Net cash used by financing activities  (1,769) (3,637)
Effects of exchange rate changes  (35) 242   (42) 325 
Net increase (decrease) in cash and cash equivalents  (216) 542   (477) 238 
Cash and cash equivalents at beginning of period  1,254  773   1,254  773 
Cash and cash equivalents at end of period $1,038 $1,315  $777 $1,011 
Assets acquired and lease obligations incurred utilizing capital leases $1,473 $1,112 

See accompanying notes to condensed consolidated financial statements.




5

BIOANALYTICAL SYSTEMS, INC. AND SUBSIDIARIESNOTESSUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.        Description of the Business and Basis of Presentation

Bioanalytical Systems, Inc. and its subsidiaries (“We,” the “Company”“the Company” or “BASi”) engage in laboratory services and other services related to pharmaceutical development. We also manufacture scientific instruments for medical research, which we sell with related software for use in industrial, governmental and academic laboratories. Our customers are located throughout the world.

We have prepared the accompanying unaudited interim condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles, (“GAAP”), and therefore should be read in conjunction with our audited consolidated financial statements, and the notes thereto, for the year ended September 30, 2005. In the opinion of management, the condensed consolidated financial statements for the three and sixnine months ended March 31,June 30, 2006 and 2005 include all adjustments which are necessary for a fair presentation of the results of the interim periods and of our financial position at March 31,June 30, 2006. The results of operations for the three and sixnine months ended March 31,June 30, 2006 are not necessarily indicative of the results for the year ending September 30, 2006.2005.

All amounts in the condensed consolidated financial statements and the notes thereto are presented in thousands, except for per share data or where otherwise noted.

2.         Stock Based Compensation

The Company has an Employee Stock Option Plan whereby options to purchase the Company's common shares at fair market value can be granted to our employees. Options granted vest and become exercisable in four equal installments beginning two years after the date of grant, and expire upon the earlier of the employee's termination of employment with the Company, or ten years from the date of grant. The plan terminates in fiscal 2008.

The Company established an Outside Director Stock Option Plan whereby options to purchase the Company's common shares at fair market value can be granted to outside directors. Options granted vest and become exercisable in four equal installments beginning two years after the date of grant and expire upon the earlier of the director's termination of board service with the Company, or ten years from the date of grant. The plan terminates in fiscal 2008.

On October 1, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors under our stock option plans, based on fair values. Previously, we had not recognized expenses for employee stock options.

We adopted FAS 123R using the modified prospective transition method, which requires the application of the accounting standard as of October 1, 2005, the first day of the our fiscal year. Our Condensed Consolidated Financial Statements as of March 31,June 30, 2006, and for the three and sixnine month periods then ended, reflect the impact of FAS 123R. In accordance with the modified prospective transition method, our Condensed Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include the impact of FAS 123R. Stock-based compensation expense for employee stock options recognized under FAS 123R for the three months and sixnine months ended March 31,June 30, 2006 was $71,000 and $139,000,$210,000, respectively. We did not record any tax benefit related to these options.

FAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Statement of Operations. Prior to the adoption of FAS 123R, the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (FAS 123).Compensation. Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Consolidated Statement of Operations.




6

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.period, reduced for estimated forfeitures. Stock-based compensation expense recognized in the our Condensed Consolidated Statement of Operations for the quarter and sixnine months ended March 31,June 30, 2006 included compensation expense for share-based payment awards granted prior to, but not yet vested as of October 1, 2005, based on the grant date fair value estimated in accordance with the provisions of FAS 123R.123. There have been no awards granted since the beginning of our fiscal year. Compensation expense for all share-based payment awards are recognized using the straight-line single option approach. Stock-based compensation expense is based on awards ultimately expected to vest and has been reduced for estimated forfeitures.




6

With the adoption of FAS 123R, we continued to use a binomial option-pricing model as our method of valuation for share-based awards. For additional information regarding assumptions used for grants made in periods prior to the current fiscal year, see Note 1(k) to our financials statements in our form 10-K for the year ended September 30, 2005.

Stock based compensation expense recongize in the current fiscal year is the result of grants in prior fiscal years.

The assumptions used in computing our stock based compensation expense for the nine months ended June 30, 2005 were:

Risk-free interest rate3.00%
Dividend yield0.00%
Volatility factor of the expected market
  price of the Company's common stock0.668
Expected life of the options (years)7.0   

There were no option grants in any other periods presented.

The following table presents the effect on earnings and earnings per share had we applied the same treatment to stock-based employee compensation in the periods ended March 31,June 30, 2005:

Three Months Ended
March 31,
 Six Months Ended
March 31,
2005
 2005
Net loss as reported  $(896)$(493)
Deduct: Total stock-based employee  
compensation expense determined under the  
fair value based method for all awards,  
net of related tax effects   (50) (93)
Pro forma net loss  $(946)$(586)
Loss per share:  
   Basic and diluted — as reported  $(0.18)$(0.10)
   Basic and diluted — pro forma  $(0.19)$(0.12)
Three Months Ended
June 30,
 Nine Months Ended
June 30,
2005
 2005
Net income (loss) as reported  $356 $(137)
Deduct:  Total stock-based employee  
compensation expense determined under the  
fair value based method for all awards,  
net of related tax effects   (37) (130)
Pro forma net income (loss)  $319 $(267)
Income (loss) per share:  
   Basic and diluted - as reported  $0.07$(0.03)
   Basic - pro forma  $0.07$(0.05)
   Diluted - pro forma  $0.06$(0.05)




7

 A summary of our stock option activity and related information for the quarter and sixnine months ended March 31June 30 is as follows:

Three Months Ended
March 31, 2006
 Six Months Ended
March 31, 2006
 Three Months Ended
June 30, 2006
 Nine Months Ended
June 30, 2006
Options
 Weighted
average
exercise
price
 Options
 Weighted
average
exercise price
 Options
 Weighted
average
exercise
price
 Options
 Weighted
average
exercise
price
Outstanding — beginning of period   454,753 $5.02 480,253 $4.95
Outstanding - beginning of period   434 $4.96 480 $4.95
Exercised  (21,000) 4.50 (21,000) 4.50  —  —  (21) 4.50
Granted  —  —  —  —   —  —  —  — 
Terminated  —  —  (25,500) 5.22  (10) 3.32 (35) 4.69
 
 
Outstanding — end of period  433,753 $4.96 433,753 $4.96
 
Outstanding - end of period  424 $5.00 424 $5.00
 

The intrinsic values of options exercised in the nine months ended June 30, 2006 and 2005 were $37 and $7 respectively.

A summary of non vested options for the nine months ended June 30, 2006 is as follows:

 Number
 Weighted Average
Grant Date
Fair Value
Non-vested Shares, beginning of year   343 $4.94
Granted   —   —  
Vested   (58)  4.56
Forfeited   (15)  4.67
 
    270 $5.03
 

The options on the 424 shares outstanding at June 30, 2006 had an aggregate intrinsic value of $550 and a weighted average contract term of 7.4 years.

 At March 31,September 30, 2005 and June 30, 2006, there were 142,000137 and 154 shares that were vested respectively, all of which were exercisable. TheAt June 30, 2006, the weighted average exercise price for these shares was $4.90$4.95 per share; the aggregate intrinsic value of these shares was $199,000$337 and the weighted average remaining term was 5.75.8 years.




78

3.         Intangible Assets and Impairment Loss

In fiscal 2003, we completed the acquisitions of LC Resources, Inc. and PharmaKinetics Laboratories, Inc. (“PKLB”). In valuing the intangibles acquired, we determined that the replacement cost, in a start-up situation, of establishing these two operations as FDA compliant research sites was $1,267 and recorded intangible assets of that amount. We determined that these assets had an indeterminate life, and accordingly did not amortize the assets. At the request of the staff of the Securities and Exchange Commission, we have re-examined the make-up of these assets, and have determined that of the total recorded, $793 related to the hiring and training of the in-place workforce. Financial Accounting Standard 141 requires that such assets be included in goodwill, accordingly we have reclassified that amount to goodwill at March 31,June 30, 2006. The remaining $474 of the intangible asset relatesrelated to the replacement costs of creating and documenting the operating systems and procedures, their validation and audit. The evolving nature of procedures in a regulated environment requires that we constantly monitor and update those procedures. Accordingly, we have revised our estimate of the useful life of that asset to a ten year life, and recorded $145 of amortization expense in Cost of Service Revenue duringServices of $12 in the periodquarter and $157 in the nine months ended March 31,June 30, 2006.

PKLB, which now constitutes our Baltimore clinical research unit, has experienced losses since acquisition, including $690 and $1,980 in the three and nine months ended June 30, 2006, before adjustment. Although improvement had been achieved in operating results since acquisition prior to record amortizationthe current year, the acquisition of a major customer by a company that had other clinical study providers and subsequent cancellation of previously scheduled studies has seriously impacted current operating results. Establishing future profitable operations there will require additional sales effort to attract new customers. Consequently, we have determined that there is a permanent impairment of value of the assets acquired, and have recorded a charge to general and administrative expenses of $1,100 to write down the value of fixed assests by $330, and other intangible assets by $387 and reduced the value of goodwill by $383 to adjust the values to our estimate of realizable values. The Baltimore clinical research unit is included in the Services segment in footnote 6. We also recorded a deferred tax benefit of $385 related to this intangible asset since the dates of acquisition over a ten year period.charge.

4.         Income (Loss) per Share

We compute basic income andor 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 dilutive potential common shares outstanding. Because all potential common shares are anti-dilutive to loss per share, those shares are not included in the computation of diluted loss per share.

The following table reconciles our computation of basic incomeearnings (loss) per share to diluted incomeearnings (loss) per share:

Three Months Ended March 31,
 Six Months Ended March 31,
2006
 2005
 2006
 2005
Three Months Ended
June 30,
 Nine Months Ended
June 30,
2006
 2005
 2006
 2005
Shares:                    
Basic shares  4,875  4,870  4,873  4,870   4,892  4,871  4,879  4,870 
Effect of dilutive securities  
Options  96  —  —  —   —  149  —  — 
Convertible Subordinated debt  —  —  —  — 
Convertible subordinated debt  —  —  —  — 
Diluted shares  4,971  4,870  4,873  4,870   4,892  5,020  4,879  4,870 
Basic and diluted net income (loss) $538 $(896)$(178)$(493)
Basic net income (loss) $(1,756)$356 $(1,934)$(137)
Diluted net income (loss) $(1,756)$356 $(1,934)$(137)
Basic earnings (loss) per share $0.11 $(0.18)$(0.04)$(0.10) $(0.36)$0.07 $(0.40)$(0.03)
Diluted earnings (loss) per share $0.11 $(0.18)$(0.04)$(0.10) $(0.36)$0.07 $(0.40)$(0.03)



89

5.         Inventories

Inventories consisted of the following:

March 31,
2006
 September 30,
2005
June 30,
2006
 September 30,
2005
Raw materials  $1,428 $1,425   $1,410 $1,425 
Work in progress  523  375   271  375 
Finished goods  439  424   391  424 
  2,390  2,224   2,072  2,224 
Less LIFO reserve  (183) (183)  (183) (183)
 $2,207 $2,041  $1,889 $2,041 

6.         Segment Information

We operate in two principal segments -— research services and research products. Our Services segment provides research and development support on a contract basis directly to pharmaceutical companies. Our Products segment provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. Our accounting policies in these segments are the same as those described in the summary of significant accounting policies.

The following table presents operating results by segment:

Three Months Ended
June 30,		 Nine Months Ended
June 30,
Three Months Ended March 31,
 Six Months Ended March 31,
 
2006
 2005
 2006
 2005
2006 2005 2006 2005
 
Operating income (loss):                    
Services $393 $(307)$(459)$304  $(2,169)$352 $(2,628)$656 
Products  774  (681) 715  (387)  (242) 580  473  205 
 
 
Total operating income (loss)  1,167  (988) 256  (83)  (2,411) 932  (2,155) 861 
Corporate expenses  (246) (283) (504) (550)  (270) (136) (774) (698)
 
 
Income (loss) before income taxes $921 $(1,271)$(248)$(633) $(2,681)$796 $(2,929)$163 
 
 



910

7.         Recent Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109(FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of our fiscal year beginning October 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of adopting FIN 48 on our financial statements.

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-Q may contain “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and/or Section 21E of the Securities Exchange Act of 1934, as amended. Those statements may include, but are not limited to, discussions regarding BASi’s intent, belief or current expectations with respect to (i) BASi’s strategic plans; (ii) BASi’s future profitability; (iii) BASi’s capital requirements; (iv) industry trends affecting the Company’s financial condition or results of operations; (v) the Company’s sales or marketing plans; or (vi) BASi’s growth strategy. Investors in BASi’s Common Sharescommon shares are cautioned that reliance on any forward-looking statement involves risks and uncertainties, including the risk factors contained in Exhibit 99.1 to BASi’s annual report on Form 10-K for the year ended September 30, 2005. Although the Company 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, and as a result, the forward-looking statements based upon those assumptions also could be incorrect. In light of the uncertainties inherent in any forward-looking statement, the inclusion of a forward-looking statement herein should not be regarded as a representation by the Company that BASi’s plans and objectives will be achieved.

GENERAL

The business of Bioanalytical Systems, Inc. is very much 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 their outsourcing of laboratory and analytical needs, and 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.

In our Annual Reportannual report on Form 10-K for the year ended September 30, 2005, we commented on the impacts and anticipated impacts developments in the pharmaceutical industry have on our businesses, as well as some of the potential risks. Those comments are still applicable, and are found under “General” in Part I, Item 2 of that report.




11

RESULTS OF OPERATIONS

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

Three Months Ended
June 30,		Nine Months Ended
June 30,
Three Months Ended
March 31,
 Six Months Ended
March 31,
20062005 20062005
 2006          
2005
 2006          
2005
Service revenue   81.0% 82.5% 79.0% 78.8% 79.380.379.179.3
Product revenue  19.0 17.5 21.0 21.2 20.719.720.920.7
 
Total revenue  100.0 100.0 100.0 100.0 100.0100.0100.0100.0
Cost of service revenue (a)  67.2 80.3 71.8 76.0 79.759.974.269.3
Cost of product revenue (a)  30.7 41.2 33.4 37.7 56.037.940.437.8
 
Total cost of revenue  60.3 73.5 63.7 67.7 74.855.567.262.8
Gross profit  39.7 26.5 36.3 32.1 25.244.532.837.2
Total operating expenses  30.3 37.2 35.1 32.5 49.236.339.534.4
 
Operating income (loss)  9.4 (10.7) 1.2 (0.3) (24.0)8.2(6.7)2.8
Other expense  (2.0) (3.2) (2.3) (3.0) (2.7)(1.2)(2.4)(2.3)
 
Income (loss) before income taxes  7.4 (13.9) (1.1) (3.3) (26.7)7.0(9.1)0.5
Income tax provision (benefit)  3.1 (4.1) (0.3) (0.7)
Income tax (expense) benefit 9.2(3.9)3.1(1.0)
 
Net income (loss)  4.3% (9.8)% (0.8)% (2.6)% (17.5)3.1(6.0)(0.5)
 

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




10

Three Months Ended March 31,June 30, 2006 Compared to Three Months Ended March 31,June 30, 2005

Service and Product Revenues

Revenues for the secondthird fiscal quarter ended March 31,June 30, 2006 increased 36%declined 11% to $12.4$10.0 million compared to $9.1$11.3 million for the secondthird fiscal quarter last year. Of the $1.3 million decline, Service revenue decreased $1.1 million, comprised of decreases of $1 million each in our Baltimore clinic and our bioanalytical laboratories, offset by a $1 million increase in our toxicology facility and $336,000 of new revenues in our pre-clinical pharmacokinetics/pharmacodynamics (“PKPD”) facility, which began commercial operation this year. The Baltimore clinic was impacted by the acquisition of our largest client for the clinic and subsequent cancellation of its scheduled work, in addition to postponement of a contract pending FDA clearance. Our Service segmentlaboratories experienced a decline in samples processed compared to the prior year when larger contracts resulted in longer production runs, as well as a decline in price per sample due to the nature of the assays. Our toxicology unit continued to experience strong demand for its services, particularly among smaller biotech and discovery clients. Our PKPD unit has experienced good market acceptance of its services, where we employ our proprietary Culex® technology to provide early stage preclinical contract studies for our clients. The decline in product revenue increased by 33% from $7.5 million to $10.1 million over the comparable period last year. Over 50% of this increase was the result of a decline in Culex® shipments compared to the delay of a significant laboratory contract in our first fiscal quarter of the current year, with the work being completed in the current fiscal quarter. Our toxicology operations accounted for the remainder of the increase, as we continue to expand our client base into biotechnology and early stage companies through our increased sales activities. Sales in our Products segment increased 48% from $1.6 million in our first fiscalsame quarter last year to $2.4 million in the current quarter. Although showing an increase over last year, our product sales have not returned to the level we experienced two years ago. This continued softness of sales of our products is the result of declining sales of our older product lines, and a dip in sales of our Culex systems after initial adoption by some major companies. Nevertheless, our sales of consumable products for the Culex line continues to increase as our installed base grows.year.


12

Cost of Revenues

Cost of revenues for the secondfiscal quarter ended March 31,June 30, 2006 was $7.5 million or 60%75% of revenue compared to $6.7$6.3 million, or 74%56% of revenue for the secondthird fiscal quarter last year. We includedThis increase in cost of service revenues is a result of several factors. We have experienced increases in the quarter ended March 31, 2006, $145 thousandour costs in our toxicology and PKPD operations, where we have experienced increased revenues, while maintaining our capabilities in our laboratories and Baltimore clinic in anticipation of additional amortizationrestoring activities to prior levels. Additionally, our revenue growth in toxicology resulted in those revenues being a higher proportion of intangible costs related to acquisitions completed in fiscal 2003our total revenues, and as a result of revising our estimate of their useful lives. Nevertheless,a higher percentage cost of revenues asin those services than in our laboratory operations, our overall cost of services increased on a percentage basis. Our product costs are up due to increasing sales of revenues decreased as a result of higherconsumable products related to our Culex® units, which have lower margins than the units themselves, and to lower utilization of our productivemanufacturing capacity, which results in excess capacity being charged to cost of product revenue. In both our Service and Products segments. Our costProduct Segments, the percentage costs increased relative to sales due to the relatively fixed nature of Service revenue as a percentage of revenue decreased from 80% in the second fiscal quarter last year to 67% in the quarter completed March 31, 2006. Similarly, our costs being carried by a reduced level of Product revenue decreased from 41% to 31% in the corresponding periods. The costs of our productive capacity are charged to cost of Servicesales and Product revenues, with the result that as our utilization of capacity increases, our costs do not increase proportionately. As we have standardized our bioanalytical laboratory procedures in West Lafayette, IN, McMinnville, OR and Kenilworth, England, we have increased our ability to move work between sites, also improving our margins. In February, 2006, we decided to consolidate our bioanaytical laboratory in Baltimore, MD into our West Lafayette facility, which will be completedhead count in our third fiscal quarter. We expect this consolidation to also favorably impact our operating margins.production facilities.




11

Operating Expenses

Selling expenses for the three months ended March 31,June 30, 2006 increased 9%decreased 13% to $680 thousand$625,000 from $626 thousand$718,000 for the three months ended March 31,June 30, 2005. Our sales expenses declined due to the timing of incidental expenses related to our sales force (year-to-date expenditures are up 6%). Research and development expenses of $350,000 for the three months ended June 30, 2006 compared to $261,000 for the three months ended June 30, 2005 and are a result of continuing research on products to support pre-clinical and clinical research.

General and administrative (“G&A”) for the three months ended June 30, 2006 were impacted by the write-down of assets related to our Baltimore clinical research unit of $1,100,000 as a result of our revised strategydetermination that those values have been impaired, and by recognition of a bad debt related to develop our sales force into a free-standing sales group, rather than relying on our technical personnel to sell our services. We expect to continue to selectively grow our sales force with the expectation that increased effort will lead to higher revenues. Research and developmentsame location of $231,000. Other items included in G&A expenses for the three months ended March 31,June 30, 2006 decreased $500,000. The principal reasons for this were a reduction of expenses in Baltimore related to our relocated laboratory and cost controls there, coupled with translation expenses charged to G&A in our UK operation last year from a weak pound sterling, compared to translation gains this year.

Other Income/Expense

Interest expense increased 16%9% to $201 thousand from $173 thousand for$272,000 in the three months ended March 31, 2005,June 30, 2006 from $250,000 in the comparable quarter of the prior year. This increase is due to new product development and an engineering update of an existing product.

General and administrative expenses for the three months ended March 31, 2006 increased 10% to $2.9 million, up from $2.6 million for the three months ended March 31, 2005. Most of this increase is caused by higher overheads, including the cost of both employee and corporate insurance, the cost of new software systems implemented since last year, the expensing of stock options and higher administrative costs at our toxicology facility as a result of significantly improved revenues.

Other Income (Expense)

Our interest expense declined $9 thousand due to lower average outstanding borrowings between the comparable quarters, in spite of higher short terms rates in the current quarter. A significant amountperiodic use of our borrowings are at fixed rates that did not change between the comparable quarters.

Income Taxes

Our tax provision for the current quarter was 42%revolving line of pre-tax income,credit, which is our effective combined federal and state rate. Foreign operations had a small lossfloating interest rate that has been consistently higher in the current quarter which did not impact our effective tax rate. Our effective tax rate in the comparable quarter last year was adversely impacted by a larger foreign operating loss for which we could take no current benefit.

Net Income (Loss)

As a result of the above factors, we had income of $538 thousand ($.11 per share, both basic and diluted) in the quarter ended March 31, 2006, compared to a loss of $896 thousand ($.18 loss per share, both basic and diluted) in the same period last year.

Six Months Ended March 31, 2006 Compared to Six Months Ended March 31, 2005

Service and Product Revenues

Revenues for the six months ended March 31, 2006 increased 18% to $22.3 million compared to $18.8 million for the six month period last year. Increases in demand for toxicology and laboratory services in the Service segment were the principal reasons for the improvement in our six month revenues. Revenues in the first fiscal quarter of the current year were negatively impacted by a large contract that was postponed to the second fiscal quarter, resulting in relatively flat revenues for the Services segment in our first fiscal quarter. Revenues for our products increased 17% for the six months, allago, as a result of the increase in the second fiscal quarter of the current year.

Cost of Revenues

Cost of revenues for the six months ended March 31, 2006 was $14.2 million or 64% of revenue compared to $12.8 million, or 68% of revenue for the same period last year. The decrease in cost of revenue as a percentage of revenue in both of our segments is primarily the result of the increased capacity utilization mentioned above in the current quarter.




12

Operating Expenses

Selling expenses for the six months ended March 31, 2006 increased 18% to $1.4 million from $1.2 million for the six months ended March 31, 2005well as the resultfinancing of the increased emphasis placed on the development of our sales force, including adding additional sales personnel. Research and development expenses for the six months ended March 31, 2006 increased 63% to $639 thousand from $392 thousand for the six months ended March 31, 2005, as we increased our effort on new product development and undertook an engineering update on an existing product line.

General and administrative expenses for the six months ended March 31, 2006 increased 27% to $5.8 million, up from $4.5 million for the six months ended March 31, 2005. In addition to the reasons for this increase discussed above for the current quarter, our Baltimore location experienced a significant increase in its occupancy costs in the first quarter of this fiscal year over the similar quarter last year as a result of the sale/leaseback of its building in January, 2005.

Other Income (Expense)

Interest expense decreased 4% in the six months ended March 31, 2006 from the comparable period of the prior year as a result of reduced average outstanding borrowings.laboratory equipment utilizing capital leases.

Income Taxes

We computed our tax benefit using an effective tax rate for both the sixthree months ended March 31,June 30, 2006 and forof 35%. This is the six months ended March 31, 2005 of 40%federal rate on our loss in our clinical research unit. We did not provide a state benefit as we have no income or state deferred taxes against which it could be utilized. In the US taxable loss. We also provided an accrual for an additional $30 thousand for settlement of a disputed state tax liability, which reduced the effective benefit for the six months ended March 31, 2006. The comparable period in the prior fiscal yearcurrent quarter, we had a disproportionate tax rate as a resultprofit of $80,000 on foreign lossesoperations for which we have loss carryforwards and therefore provided no taxes, and recorded $71,000 of stock option expenses for which we took no tax benefit. In the three months ended June 30, 2005 we provided taxes at the rate of 41% on US taxable income, and did not record a benefit for our foreign loss, resulting in an effective tax rate above the statutory rate.

Net LossIncome

As a result of the above factors, we lost $1,756,000 ($.36 per share, both basic and diluted) in the quarter ended June 30, 2006, compared to net income of $356,000 ($.07 per share, both basic and diluted) in the same period last year.

Nine Months Ended June 30, 2006 Compared to Nine Months Ended June 30, 2005

Service and Product Revenues

Revenues for the nine months ended June 30, 2006 increased 7% to $32.3 million compared to $30.1 million for the first nine months of fiscal 2005. Service revenue increases of 7% were the result of an increase in toxicology revenues of $3 million, new revenues from our PKPD facility of $850,000, offset by declines in our Baltimore clinic of $435,000 and declines in our bioanalytical laboratories of $1.4 million, due to the factors cited above for the current quarter. Revenues for our products increased 8% for the nine months, which was a general increase across our product lines.


13

Cost of Revenues

Cost of revenues for the nine months ended June 30, 2006 was $21.7 million or 67% of revenue compared to $18.9 million, or 63% of revenue for the same period last year. Both the cost of Service revenue and Product revenue increased as a percentage of revenues due to the items cited in the current quarter.

Operating Expenses

Selling expenses for the nine months ended June 30, 2006 increased 6% to $2.0 million from $1.9 million for the nine months ended June 30, 2005. This increase is the net of several personnel changes we have made as we endeavor to improve the effectiveness of our sales force. Research and development expenses for the nine months ended June 30, 2006 increased 51% to $989,000 from $653,000 for the nine months ended June 30, 2005. This increase is attributable to additional developmental efforts on new products in the current year.

General and administrative expenses for the nine months ended June 30, 2006 increased 25% to $9.7 million, up from $7.8 million for the nine months ended June 30, 2005, primarily as a result of the adjustments made in the current quarter mentioned above. Also included in the increase are additional facilities expense in Baltimore of approximately $250,000 in the current year from the sale/leaseback of the facility in January, 2005, increases in our insurance costs, and the addition of a senior officer in the current year.

Other Income/Expense

Interest expense did not change significantly in the nine months ended June 30, 2006 from the comparable period of the prior year. Lower average borrowing on our revolving line of credit in the current year was offset by additional financing costs of capital leases.

Income Taxes

We computed our benefit for the nine months ended June 30, 2006 using the federal rate of 35% with no state benefit. For the nine months ended June 30, 2005 we used an effective tax rate of 40% on the US taxable income. In that period, we did not provide a benefit on foreign losses because we had no foreign carrybacks or deferred taxes against which to utilize those benefits, which resulted in a disproportionate tax rate.

Net Loss

Our net loss for the nine months ended June 30, 2006 was $1,934,000 ($0.40 per share, both basic and diluted). As a result of the taxes on US income exceeding our consolidated income before tax in the nine months ended June 30, 2005, we experienced a net loss of $178 thousand$137,000 ($.04 loss.03 per share, both basic and diluted) for.

Impairment Charges

Our Baltimore clinical research unit has experienced losses since acquisition, including $690,000 and $1,980,000 in the first sixthree and nine months ofended June 30, 2006, before adjustment. Although improvement had been achieved in operating results since acquisition prior to the current year, comparedthe acquisition of a major customer and subsequent cancellation of previously scheduled studies has seriously impacted current operating results. Establishing future profitable operations there will require additional sales effort in attracting new customers. Consequently, in connection with the preparation of our financial statements for the fiscal quarter ended June 30, 2006, we have determined that there is a permanent impairment of value of the assets acquired, and have recorded a charge to net loss ingeneral and administrative expenses of $1,100,000 to write down the prior yearvalue of $493 thousand ($.10 loss per share, both basicfixed assests by $330,000 and diluted) .other intangible assests by $387,000 and reduce the value of goodwill by $383,000 to adjust the values to our estimate of realizable values. We also recorded a deferred tax benefit of $385,000 related to this charge.




1314

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, BASi’s principal sources of cash have been cash flow generated from operations and funds received from bank borrowings and other financings. At March 31,June 30, 2006 we had cash and cash equivalents of $1 million,$777,000, compared to cash and cash equivalents of $1.3 million$1,254,000 at September 30, 2005. Approximately 60%50% of our cash balances were in the U.K., a portion of which was repatriated to the U.S. after the close of the second fiscal quarter. We monitor our U.K. cash needs to avoid currency conversion costs, which in the current interest rate environment can exceed interest.

Our net cash provided by operating activities was $1.1$2.6 million for the sixnine months ended March 31,June 30, 2006. At September 30, 2005 we had unusually high receivables balances as aThis was the result of new contracts for whichcollections against our receivables, and reduced investment in our inventories, offset by working down the balances in customer deposits.

We utilized this cash from operations to finance $1.3 million of capital asset additions, principally upgrading of facilities in our toxicology and clinical research units. Additionally we bill up to 30%repaid $1.9 million of debt and capital leases during the total fee upon initiation of the contract. This balance has been reduced as we have performed on those contracts.nine month period. We also had a large customer cancel several contracts as a resultfinanced $1.5 million of being acquired, which resultedlaboratory equipment in the reversal of over $1 million of billings and the offsetting reduction in our Customer Advances account. Correspondingly, our accounts payable and accrued expenses at March 31, 2006 were reduced due to the timing of required payments, funded from our cash flow and additional borrowings on our line of credit

Net cash used by investing activities was $1.3 million in the sixnine months ended March 31,June 30, 2006 as a result of routine additions and replacements of production equipment. Of this, $972 thousand was funded through a lease facility closed after the end of the quarter.with capital leases.

Capital Resources

We have outstanding an outstandingirrevocable letter of credit securingissued to secure the lease of our lease on our facility in Baltimore facility. The letter of credit is for $2.0 million. This reducesmillion currently, reducing to $1.0 million in January, 2007 and will be extinguished upon the completion of our leaseexpiring in January, 2008. This letter of credit is counted against our maximum allowable borrowing under our $6.0 million revolving credit agreement with our bank, which is committed until December 31, 2007.

The letter of credit reduces the amount of funds available under theour $6 million revolving credit facility. The amount of funds available under this facility is calculated using a borrowing base formula.formula, principally as percentage of qualifying receivables and inventory. Our recent monthly average qualifying assets for our borrowing base have been approximately $4.0 million. The presence of this outstanding letter of credit could therefore substantially reduce the amount of cash available under our revolving credit facility.$5,000,000.

We do not expect our totalto have any significant additional capital additions in the current fiscal year. We are currently in our planning cycle for our next fiscal year beginning October 1, 2006, and anticipate our additions for next year to be in the range ofapproximately $2.0 million to $2.5 million. After the close(none of the quarter, we arrangedwhich has currently been committed). We have not completed arrangements for financing these additions, but anticipate a lease with a third partycombination of debt, leasing company to finance $972 thousandand utilization of this amount with a capital lease with a five year term.operating cash flow.

Liquidity

We do not foresee the need to borrow extensively under our revolving credit agreement to finance current operations, except for periods when rapid growth of new business may necessitate amounts to finance the buildup of receivables and inventory. Nevertheless, continuation of operating results similar to those experienced in the quarter ended June 30, 2006 would negate our currently positive operating cash flow, and impact our ability to obtain additional financing. Historically, we have experienced significantly varying results from quarter to quarter as a result of the timing of the award and performance of sizable contracts, and we expect that pattern to continue.

At March 31,June 30, 2006, we had $1 million$777,000 in cash, and approximately $400 thousand$3 million of available borrowings under our revolving credit facility.

Our revolving line of credit expires December 31, 2007. The maximum amount available under the terms of the agreement is $6.0 million with outstanding borrowings limited to the borrowing base as defined in the agreement. Interest accrues monthly on the outstanding balance at the bank’s prime rate to prime rate plus 25 basis points, or at the Eurodollar rate plus 250 to 300 basis points, at our election, depending upon the ratio of our interest bearing indebtedness (less subordinated debt) to EBITDA. We pay a fee equal to 25 basis points on the unused portion of the line of credit.




14

We are required to make cash payments in the future on debt and lease obligations. The following table summarizes BASi’s contractual term debt, lease obligations and other commitments at March 31, 2006 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (amounts presented for 2006 are those items required in the final two quarters):

2006
 2007
 2008
 2009
 2010
 After 2010
 Total
 
Capital expenditures  $500 $— $— $— $— $— $500 
Mortgage notes payable   224 362 384 407 431 6,912  8,720 
Subordinated debt   —  360  4,477  —  —  —  4,837 
Capital lease obligations   187  314  329  346  221  40  1,437 
Operating leases   1,055  1,846  753  10  —  —  3,664 
 
   $1,966 $2,882 $5,943 $763 $652 $6,952 $19,158 

For further details on our indebtedness, see Note 7 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2005.

The covenants in the Company’s credit agreement, requiring the maintenance of certain ratios of interest bearing indebtedness (not including subordinated debt) to EBITDA and net cash flow to debt servicing requirements, may restrict the amount the Company can borrow to fund future operations, acquisitions and capital expenditures. Based on our current business activities, we believe cash generated from our operations and amounts available under our existing credit facilities and cash on hand, will be sufficient to fund the Company’s working capital and capital expenditure requirements for the foreseeable future.coming year. As a result of the loss in the three months ended June 30, 2006, we did not meet our fixed charge coverage ratio for the quarter. Our bank has waived this event of non-compliance.




15

We are required to make cash payments in the future on debt and lease obligations. The following table summarizes BASi’s contractual term debt, lease obligations and other commitments at June 30, 2006 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (amounts presented for 2006 are those items required in the final quarter), for the fiscal years ending September 30(in thousands):

2006
 2007
 2008
 2009
 2010
 After 2010
 Total
Capital expenditures  $250 $— $— $— $— $— $250 
Mortgage notes payable   86 362 384 407 431 6,963  8,633 
Subordinated debt   —  360  4,359  118  —  —  4,837 
Capital lease obligations   133  472  510  557  453  128  2,253 
Operating leases   527  1,846  387  10  —  —  2,770 
   $996 $3,040 $5,640 $1,092 $884 $7,091 $18,743 

For further details on our indebtedness, see Note 7 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2005.

AMENDMENT

On August 14, 2006, the Company filed its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2006 (the "Prior Form 10-Q"), mistakenly believing that its independent accountant, KPMG LLP ("KPMG") had completed the review of the unaudited interim financial information as of and for the three and nine month periods ended June 30, 2006 set forth in the Prior Form 10-Q required by Statement on Auditing Standards No. 100, Interim Financial Statements (the "SAS 100 Review"). On August 15, 2006, KPMG informed the Company that KPMG had not completed its SAS 100 Review of the unaudited interim financial information included in the Prior Form 10-Q prior to the time the Prior Form 10-Q was filed with the U.S. Securities and Exchange Commission. The Company undertook to file an amended Form 10-Q upon completion of KPMG's SAS 100 review. Due to the fact that KPMG's SAS 100 Review had not been completed, the Company advised that the condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of cash flows and notes to condensed consolidated financial statements as of and for the three and nine month periods ended June 30, 2006 included in the Prior Form 10-Q should not be relied upon.

In connection with the completion of KPMG's SAS 100 Review, KPMG and management identified certain material misstatements in connection with the impairment charges related to our Baltimore clinical research unit, as discussed above, and identified certain material weaknesses in our controls and procedures discussed in Item 4, Controls and Procedures, below.




16

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

BASi’s primary market risk exposure with regard to financial instruments is changes in interest rates. Borrowings under the credit agreement between BASi and National City Bank dated January 4, 20062005 bear interest at a rate of either the bank’s prime rate to prime plus 25 basis points, or at the Eurodollar rate plus 250 to 300 basis points, depending in each case upon the ratio of BASi’s interest-bearing indebtedness (less subordinated debt) to EBITDA, at BASi’s option. As discussed previously, weWe have taken steps to fix the interest rate on a significant amount of our debt through May, 2007. Historically, BASi has not used derivative financial instruments to manage exposure to interest rate changes. BASi estimates that a hypothetical 10% adverse change in interest rates would not affect the consolidated operating results of BASi by a material amount.

BASi operates internationally and is, therefore, subject to potentially adverse movements in foreign currency exchange rates. The effect of movements in the exchange rates was not material to the consolidated operating results of BASi in fiscal years 20052006 and 2004.2005. BASi estimates that a hypothetical 10% adverse change in foreign currency exchange rates would not affect the consolidated operating results of BASi by a material amount.

ITEM 4.    CONTROLS AND PROCEDURES

In the initial report on Form 10-Q for the fiscal quarter ended June 30, 2006, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June 30, 2006. Based on their most recent evaluation, and following the review of the letter from the Company's independent accountants, KPMG LLP ("KPMG"), discussed below, the Company’s Chief Executive Officer and Chief Financial Officer believehave now concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were not effective, as of March 31,June 30, 2006, to ensure that information required to be disclosed by the Company in this Form 10-Q was recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. As disclosedThis determination is based upon the material weaknesses identified below.

KPMG has presented a letter regarding the following items to the Audit Committee of the Board of Directors, dated August 29, 2006 relating to its review of the unaudited interim financial statements for the Company as of June 30, 2006, and for the three and nine months then ended (the “Letter”). KPMG noted certain conditions involving the Company’s internal control and its operation that KPMG considered to be “material weaknesses.” “Material weakness” was defined in the Letter as “a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected by the entity's internal control.” The material weaknesses noted by KPMG consisted of a failure to set an appropriate "tone at the top" to instill a company-wide attitude of control consciousness; failure to maintain adequate procedures for anticipating and identifying financial reporting risks and for reacting to changes in its annual reportoperating environment that could have a material effect on form 10-Kfinancial reporting; failure to maintain adequately trained personnel to perform effective review of accounting procedures critical to financial reporting; and a lack of adequately trained finance and accounting personnel with the ability to apply U.S. generally accepted accounting principles associated with the impairment of certain long-lived assets in accordance with Statement of Financial Accounting Standards No. 144,Accounting for the fiscal year ended September 30, 2005,Impairment or Disposal of Long-Lived Assets. Management concurs with the Company implemented new systemsassessment of KPMG and is currently reviewing its internal controls and procedures.

As a result of the aforementioned material weaknesses in its prior fiscal year. Although the Company continuesinternal control over financial reporting, material misstatements of our current condensed consolidated financial statements occurred and were identified. To correct these errors in the development of these new systems, the Chief Executive Officer and Chief Financial Officer believe that implementation of these new accounting, systems now allow the Companywe have filed this Amendment to record, process, summarize and report accounting information to timely file its Exchange Act reports.Quarterly Report on Form 10-Q.

There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.




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PART II -— OTHER INFORMATION

ITEM 4.     SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS1A.    RISK FACTORS

On February 26,In addition to the risk factors disclosed in Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2005, the Annual Meetingfollowing factor should be considered in evaluating our business and financial condition.

Our independent registered public accounting firm has advised management and our audit committee that they have identified material weaknesses in our internal controls and we have concluded that we have material weaknesses in our disclosure controls and procedures. Our business and stock price may be adversely affected if we do not remediate these material weaknesses or if we have other material weaknesses in our internal controls.

As we disclose in Part I, Item 4, "Controls and Procedures" of Shareholdersthis Form 10-Q, our management and independent accountants have concluded that our disclosure controls and procedures were not effective as of BASi was held atJune 30, 2006. While we are reviewing and intend to take immediate steps to correct our internal control weaknesses, the principal executive officesmaterial weaknesses that have been discovered will not be considered remediated until new and improved internal controls operate for a period of BASi. The following matters were votedtime, are tested and it is concluded that such new and improved internal controls are operating effectively. Pending the successful completion of such testing, we will identify, develop and perform mitigating procedures relating to our internal control weaknesses.

Any failure to implement and maintain the improvements in the controls over our financial reporting, or difficulties encountered in the implementation of these improvements in our controls, could cause us to fail to meet our reporting obligations. Any failure to improve our internal controls to address the identified material weaknesses could also cause investors to lose confidence in our reported financial information, which could harm our operations or results or cause us to fail to meet our reporting obligations, and could have a negative impact on at the meeting:trading price of our stock. We cannot be certain that any steps we may take to improve our internal controls to address the identified material weaknesses will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future.

MATTER:
VOTES CAST FOR:
VOTES CAST
AGAINST
 
Election of the directors of BASi:      
     Peter T. Kissinger   4,456,029  83,766 
     Candice B. Kissinger   4,469,214  70,581 
     William E. Baitinger   4,380,218  159,577 
     David W. Crabb   4,469,084  70,711 
     Leslie B. Daniels   4,396,488  143,307 
     Gayl W. Doster   4,378,384  161,411 

ITEM 5.    OTHER INFORMATION

In connection with the preparation of our financial statements for the fiscal quarter ended June 30, 2006, we concluded that there is a permanent impairment of value of the assets of one of the companies we acquired, and have recorded a charge to general and administrative expenses of $1,100,000 to write down the value of fixed assets by $330,000 and other intangible assets by $387,000, and reduce the value of goodwill by $383,000. We also recorded a deferred tax benefit of $385,000 related to this charge. Pursuant to the instructions to Item 2.06 of Form 8-K, the information required by such Item is included in the Management's Discussion and Analysis of Financial Condition and Results of Operations above. Please see the heading Results of Operations — Impairment Loss on Intangible Assets and Goodwill, which information is incorporated herein by this reference.




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ITEM 6.    EXHIBITS

Exhibits

Number assigned
in Regulation S-K
Item 601
Description of Exhibits

(3)3.1Second 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).

3.2Second Restated Bylaws of Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 3.2 Form 10-Q for the quarter ended December 31, 1997).

(4)4.1Specimen Certificate for Common Shares (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1, Registration No. 333-36429).

(31)31.1Certification of Peter T. Kissinger +

31.2Certification of Michael R. Cox +

(32)32.1Section 1350 Certifications +

(99)99.1Risk factors (incorporated by reference to Exhibit 99.1 to Form 10-K for the year ended September 30, 2005).


† Filed with this Quarterly Report on Form 10-Q.




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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:

BIOANALYTICAL SYSTEMS, INC.




By:  /s/ PETER T. KISSINGER

Peter T. Kissinger
President and Chief Executive
Officer
(Principal (Principal Executive Officer)

Date:  May 15,August 29, 2006




By:  /s/ MICHAEL R. COX
Michael R. Cox
Vice President-Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)

Date:  May 15,August 29, 2006




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