UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)

x

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

For the quarterly period ended December 31, 2006

OR

o

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


(Mark One)

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

For the quarterly period ended March 31, 2007

OR

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

For the transition period from ___________ to _____________


Commission File Number 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

35-1345024

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2701 KENT AVENUE

WEST LAFAYETTE, IN

47906

(Address of principal executive offices)

(Zip code)

(765) 463-4527

(Registrant’s telephone number, including area code)

(765) 463-4527
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES

x

NO

o


YES x NO o

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

o

Accelerated Filer

o

Non-accelerated Filer

x


Large Accelerated Filer o Accelerated Filer o Non-accelerated Filer x

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

Yes

o

NO

x


Yes o NO x

As of February 10, 2006,April 30, 2007, 4,909,127 Common Sharescommon shares of the registrant were outstanding.

1



PAGE NUMBER

PART I

PAGE FINANCIAL INFORMATIONNUMBER

PART I

FINANCIAL INFORMATION

Item 1

Condensed Consolidated Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of DecemberMarch 31, 20062007 and September 30, 2006

3

Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended DecemberMarch 31, 20062007 and 2005

2006

4

Condensed Consolidated Statements of Cash Flows for the ThreeSix Months Ended DecemberMarch 31, 20062007 and 2005

2006

5

Notes to Condensed Consolidated Financial Statements

6

Item 2

Item 3

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10
Item 3Quantitative and Qualitative Disclosures About Market Risk

10

15

14

Item 4

Controls and Procedures

15

14

PART II

OTHER INFORMATION

Item 6

4

Exhibits

16

Submission of Matters to a Vote of Security Holders		15

SIGNATURES

Item 6

17

2

Part I.

Exhibits

Financial Statements

15

Item 1.

Condensed Consolidated Financial Statements

SIGNATURES16

2

Part I. Financial Statements
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

December 31, 2006

 

September 30, 2006

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,863

 

$

1,647

 

Accounts receivable

 

 

 

 

 

 

 

Trade

 

 

5,992

 

 

6,492

 

Unbilled revenues and other

 

 

1,460

 

 

1,545

 

Inventories

 

 

2,211

 

 

1,887

 

Deferred income taxes

 

 

724

 

 

604

 

Refundable income taxes

 

 

762

 

 

888

 

Prepaid expenses

 

 

516

 

 

599

 

Total current assets

 

 

13,528

 

 

13,662

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

25,308

 

 

25,766

 

Goodwill

 

 

1,855

 

 

1,855

 

Intangible assets, net

 

 

464

 

 

517

 

Debt issue costs

 

 

229

 

 

246

 

Other assets

 

 

247

 

 

268

 

Total assets

 

$

41,631

 

$

42,314

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,451

 

$

1,610

 

Accrued expenses

 

 

2,684

 

 

3,081

 

Customer advances

 

 

4,025

 

 

4,226

 

Current portion of capital lease obligation

 

 

481

 

 

472

 

Current portion of long-term debt

 

 

844

 

 

721

 

Total current liabilities

 

 

9,485

 

 

10,110

 

 

 

 

 

 

 

 

 

Capital lease obligation, less current portion

 

 

1,524

 

 

1,648

 

Long-term debt, less current portion

 

 

8,093

 

 

8,186

 

Subordinated debt, long-term

 

 

3,999

 

 

4,477

 

Deferred income taxes

 

 

486

 

 

539

 

 

 

 

 

 

 

 

 

Shareholders equity:

 

 

 

 

 

 

 

Preferred Shares:

 

 

 

 

 

 

 

Authorized shares – 1,000

 

 

 

 

 

 

 

Issued and outstanding shares - none

 

 

—

 

 

—

 

Common Shares:

 

 

 

 

 

 

 

Authorized shares – 19,000

 

 

 

 

 

 

 

Issued and outstanding shares – 4,909 at December 31, 2006

 

 

 

 

 

 

 

and 4,892 at September 30, 2006

 

 

1,186

 

 

1,182

 

Additional paid-in capital

 

 

11,792

 

 

11,677

 

Retained earnings

 

 

5,141

 

 

4,584

 

Accumulated other comprehensive loss

 

 

(75

)

 

(89

)

Total shareholders’ equity

 

 

18,044

 

 

17,354

 

Total liabilities and shareholders’ equity

 

$

41,631

 

$

42,314

 


  (Unaudited) March 31, 2007 (Audited) September 30, 2006 
Assets
      
Current assets:      
Cash and cash equivalents
 $1,415 $1,647 
Accounts receivable
       
Trade
  5,767  6,492 
Unbilled revenues and other
  2,703  1,545 
Inventories
  1,973  1,887 
Deferred income taxes
  724  604 
Refundable income taxes
  940  888 
Prepaid expenses
  717  599 
Asset held for resale
  653  — 
Total current assets  14,892  13,662 
        
Property and equipment, net  23,925  25,766 
Goodwill  1,855  1,855 
Intangible assets, net  411  517 
Debt issue costs  250  246 
Other assets  246  268 
        
Total assets $41,579 $42,314 
Liabilities and shareholders’ equity
       
Current liabilities:       
Accounts payable
 $1,537 $1,610 
Accrued expenses
  2,602  3,081 
Customer advances
  3,916  4,226 
Current portion of capital lease obligation
  490  472 
Current portion of long-term debt
  4,849  721 
Total current liabilities  13,394  10,110 
        
Capital lease obligation, less current portion  1,399  1,648 
Long-term debt, less current portion  7,996  8,186 
Subordinated debt, long-term  —  4,477 
Deferred income taxes  539  539 
        
Shareholders equity:       
Preferred Shares:
       
Authorized shares - 1,000
       
Issued and outstanding shares - none
  —  — 
Common Shares:
       
Authorized shares - 19,000
       
Issued and outstanding shares - 4,909 at March 31, 2007
       
and 4,892 at September 30, 2006
  1,189  1,182 
Additional paid-in capital  11,842  11,677 
Retained earnings  5,264  4,584 
Accumulated other comprehensive loss  (44) (89)
        
Total shareholders’ equity  18,251  17,354 
        
Total liabilities and shareholders’ equity $41,579 $42,314 
See accompanying notes to condensed consolidated financial statements.

3


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended December 31,

 

 

 

2006

 

 

 

2005

 

 

 

 

 

 

 

 

 

Service revenue

 

$

8,608

 

 

 

$

7,539

 

Product revenue

 

 

2,276

 

 

 

 

2,305

 

Total revenue

 

 

10,884

 

 

 

 

9,844

 

 

 

 

 

 

 

 

 

 

 

Cost of service revenue

 

 

6,622

 

 

 

 

5,864

 

Cost of product revenue

 

 

877

 

 

 

 

834

 

Total cost of revenue

 

 

7,499

 

 

 

 

6,698

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

3,385

 

 

 

 

3,146

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling

 

 

679

 

 

 

 

733

 

Research and development

 

 

355

 

 

 

 

439

 

General and administrative

 

 

1,622

 

 

 

 

2,887

 

Total operating expenses

 

 

2,656

 

 

 

 

4,059

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

729

 

 

 

 

(913

)

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

12

 

 

 

 

2

 

Interest expense

 

 

(241

)

 

 

 

(258

)

Other income

 

 

3

 

 

 

 

—

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

503

 

 

 

 

(1,169

)

Income tax benefit

 

 

(53

)

 

 

 

(453

)

Net income (loss)

 

$

556

 

 

 

 

(716

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

 

 

$

(0.15

)

Diluted

 

$

0.11

 

 

 

$

(0.15

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

 

4,907

 

 

 

 

4,871

 

Diluted

 

 

4,942

 

 

 

 

4,871

 


  
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
  2007 2006 2007 2006 
Service revenue $8,726 $10,053 $17,334 $17,592 
Product revenue  2,585  2,364  4,861  4,669 
Total revenue  11,311  12,417  22,195  22,261 
              
Cost of service revenue  6,968  6,760  13,585  12,624 
Cost of product revenue  1,163  725  2,040  1,560 
Total cost of revenue  8,131  7,485  15,625  14,184 
              
Gross profit  3,180  4,932  6,570  8,077 
              
Operating expenses:             
Selling  673  680  1,352  1,413 
Research and development  101  201  456  639 
General and administrative  1,858  2,873  3,497  5,774 
(Gain) loss on sale of property and equipment  95  11  83  (5)
Total operating expenses  2,727  3,765  5,388  7,821 
              
Operating income  453  1,167  1,182  256 
              
Interest income  12  2  24  4 
Interest expense  (230) (248) (471) (508)
Other income  —  
—
  3  
—
 
              
Income (loss) before income taxes  235  921  738  (248)
              
Income taxes (benefit)  111  383  58  (70)
Net income (loss) $124 $538 $680 $(178)
              
Net income (loss) per share:             
Basic $0.03 $0.11 $0.14 $(0.04)
Diluted $0.03 $0.11 $0.14 $(0.04)
              
Weighted common and common equivalent             
shares outstanding:             
Basic  4,909  4,875  4,907  4,873 
Diluted  4,940  4,971  4,924  4,873 
See accompanying notes to condensed consolidated financial statements.

4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended December 31,

 

 

 

2006

 

2005

 

Operating activities

 

 

 

 

 

 

 

Net income (loss)

 

$

556

 

$

(716

)

Adjustments to reconcile net income (loss) to net

 

 

 

 

 

 

 

cash used by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

997

 

 

950

 

Deferred and refundable income taxes

 

 

(47

)

 

(667

)

Employee stock option expense

 

 

43

 

 

44

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

585

 

 

(616

)

Inventories

 

 

(324

)

 

(219

)

Prepaid expenses and other assets

 

 

104

 

 

(27

)

Accounts payable

 

 

(159

)

 

(131

)

Accrued expenses

 

 

(397

)

 

(330

)

Customer advances

 

 

(201

)

 

1,373

 

Net cash generated (used) by operating activities

 

 

1,157

 

 

(339

)

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

Capital expenditures

 

 

(268

)

 

(146

)

Net cash used by investing activities

 

 

(268

)

 

(146

)

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

Borrowings on line of credit

 

 

0

 

 

4,663

 

Payments on line of credit

 

 

0

 

 

(4,212

)

Proceeds from exercise of stock options

 

 

76

 

 

—

 

Payments on capital lease obligations

 

 

(115

)

 

(78

)

Payments of long-term debt

 

 

(448

)

 

(461

)

Net cash used by financing activities

 

 

(487

)

 

(88

)

 

 

 

 

 

 

 

 

Effects of exchange rate changes

 

 

(186

)

 

(1

)

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

216

 

 

(574

)

Cash and cash equivalents at beginning of period

 

 

1,647

 

 

1,254

 

Cash and cash equivalents at end of period

 

$

1,863

 

$

680

 


  Six Months Ended March 31, 
  2007 2006 
Operating activities
     
Net income (loss) $680 $(178)
Adjustments to reconcile net income (loss) to net       
cash provided by operating activities:       
Depreciation and amortization
  1,767  1,702 
(Gain) Loss on sale of property and equipment
  83  (5)
Deferred income taxes
  (120) (100)
Employee stock option expense  93  139 
Changes in operating assets and liabilities:
       
Accounts receivable
  (433) 2,619 
Inventories
  (86) (166)
Prepaid expenses
  (98) (175)
Asset held for resale
  (653) — 
Accounts payable
  (73) (442)
Refundable income taxes
  (51) (307)
Accrued expenses
  (442) (514)
Customer advances
  (310) (1,496)
Net cash provided by operating activities  357  1,077 
        
Investing activities
       
Capital expenditures - Net of disposals  290  (1,332)
Proceeds from sale of property and equipment  
—
  50 
Net cash provided (used) by investing activities  290  (1,282)
        
Financing activities
       
Borrowings on line of credit  0  8,805 
Payments on line of credit  0  (8,156)
Payments on capital lease obligations  (231) (168)
Proceeds from exercise of stock options  79  94 
Payments of long-term debt  (539) (551)
Net cash provided (used) by financing activities  (691) 24 
        
Effects of exchange rate changes  (188) (35)
        
Net increase (decrease) in cash and cash equivalents  (232) (216)
Cash and cash equivalents at beginning of period  1,647  1,254 
Cash and cash equivalents at end of period $1,415 $1,038 
See accompanying notes to condensed consolidated financial statements

statements.

5


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

(Amounts in thousands, except per share data)
1.Description of the Business and Basis of Presentation

(Unaudited)

1.

Description of the Business and Basis of Presentation

Bioanalytical Systems, Inc. and its subsidiaries (the “Company”(“We,” 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 condensedconsolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United Statesaccounting principles (“GAAP”), and therefore should be read in conjunction with our audited consolidated financial statements, and the notes thereto, included in our Form 10-K for the year ended September 30, 2006. In the opinion of management, the condensed consolidated financial statements for the three and six months ended DecemberMarch 31, 20062007 and 20052006 include all adjustments which are necessary for a fair presentation of the results of the interim periods and of our financial position at DecemberMarch 31, 2006.2007. The results of operations for the three and six months ended DecemberMarch 31, 20062007 are not necessarily indicative of the results to be expected for the year ending September 30, 2007.


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

2.

Stock Based Compensation


2.Stock Based Compensation

At DecemberMarch 31, 2006,2007, we had stock-based employee and outside director compensation plans, which are described more fully in Note 8 in the Notes to the Consolidated Financial Statements in our Form 10-K for the year ended September 30, 2006. All options granted under these plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. Effective October 1, 2005, we began expensing the estimated fair value of stock options over the vesting periods of the grants, in accordance with Financial Accounting Standard 123 (Revised). Utilizing Modified Prospective Application, we expensed that portion of the estimated fair value of awards at grant date related to the outstanding options that vested during the period. The assumptions used are detailed in Note 1(f) to our financial statements in our Annual Report on Form 10-K for the year ended September 30, 2006. This resulted inStock based compensation expense of $43 with no tax benefit infor the quarterthree months and six months ended DecemberMarch 31, 2006,2007 was $50 and $93, respectively, and compensation expense of $67for the three months and a related deferredsix months ended March 31, 2006 was $71 and $139, respectively. We did not record any tax benefit of $23 in the quarter ended December 31, 2005.

related to these options.


There were no options granted in the fiscal year ended September 30, 2006. The assumptions used in computing our stock based compensation expense for options granted in the threesix months ended DecemberMarch 31, 20062007 were as follows:


Risk-free interest rate

4.65%

4.65%

Dividend yield

0.00%

0.00%

Volatility factor of the expected market

price of the Company’s common stock

0.623

Expected life of the options (years)

6.9 —7.7

3.

Income (loss) per share

3.Income (Loss) per Share
We compute basic income/(loss) per share using the weighted average number of common shares outstanding. We compute diluted incomeincome/(loss) per share using the weighted average number of common and potential common shares outstanding. Potential common shares include the dilutive effect of shares issuable upon exercise of options to purchase common shares. Shares issuable upon conversion of convertible subordinated debt have not been included

6

as they were not dilutive. No shares issuable upon exercise of options or conversion of debt are included in the computation of loss per share in 2005for the six months ended March 31, 2006 as they are anti-dilutive.

6
The following table reconciles our computation of basic income/(loss) per share to diluted income/(loss) per share:

 

 

Three Months Ended December 31,

 

 

 

2006

 

 

 

2005

 

Shares:

 

 

 

 

 

 

 

 

 

Basic shares

 

 

4,907

 

 

 

 

4,871

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

Options

 

 

35

 

 

 

 

—

 

Convertible subordinated debt

 

 

—

 

 

 

 

—

 

Diluted shares

 

 

4,942

 

 

 

 

4,871

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss)

 

$

556

 

 

 

$

(716

)

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per share

 

$

0.11

 

 

 

$

(0.15

)

Diluted income (loss) per share

 

$

0.11

 

 

 

$

(0.15

)

4.

Inventories

  
Three Months Ended March 31,
 
Six Months Ended March 31,
 
  
2007
 
2006
 
2007
 
2006
 
Shares:             
Basic shares  4,909  4,875  4,907  4,873 
Effect of dilutive securities             
Options  31  96  17  
—
 
Convertible Subordinated debt  
—
  
—
  
—
  
—
 
Diluted shares  4,940  4,971  4,924  4,873 
Basic and diluted net income (loss) $124 $538 $680 $(178)
Basic earnings (loss) per share $0.03 $0.11 $0.14 $(0.04)
Diluted earnings (loss) per share $0.03 $0.11 $0.14 $(0.04)
4.Inventories

Inventories consisted of the following:

 

 

 

 

December 31, 2006

 

 

 

September 30, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw materials

 

 

 

$

1,488

 

 

 

$

1,335

 

Work in progress

 

 

 

 

290

 

 

 

 

278

 

Finished goods

 

 

 

 

516

 

 

 

 

357

 

 

 

 

 

 

2,294

 

 

 

 

1,970

 

Less LIFO reserve

 

 

 

 

(83

)

 

 

 

(83

)

 

 

 

 

$

2,211

 

 

 

$

1,887

 

5.

Segment Information


  
March 31,
2007
 September 30, 2006 
Raw materials $1,381 $1,335 
Work in progress  212  278 
Finished goods  463  357 
   2,056  1,970 
Less LIFO reserve  (83) (83)
  $1,973 $1,887 

5.Segment Information
We operate in two principal segments - research Services and research Products. Our Services segment provides research and development support on a contract basis directly to pharmaceutical companies. Our Products segment provides liquid chromatography, electrochemical and physiological monitoring products to pharmaceutical companies, universities, government research centers and medical research institutions. Our accounting policies in these segments are the same as those described in the summary of significant accounting policies found in Note 1 to Consolidated Financial Statements in our annual report on Form 10-K for the year ended September 30, 2006.

7

The following table presents operating results by segment:

 

 

Three Months Ended

December 31,

 

 

 

2006

 

2005

 

Operating income (loss):

 

 

 

 

 

 

 

Services

 

$

458

 

$

(854

)

Products

 

 

271

 

 

(59

)

Total operating income (loss)

 

 

729

 

 

(913

)

Corporate expenses

 

 

(226

)

 

(256

)

Income (loss) before income taxes

 

$

503

 

$

(1,169

)


  
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
  2007 2006 2007 2006 
Operating income (loss):
             
Services $278 $393 $736 $(459)
Products  175  774  446  715 
Total operating income  453  1,167  1,182  256 
Corporate expenses  (218) (246) (444) (504)
Income (loss) before income taxes $235 $921 $738 $(248)
6. Asset Held for Resale
On April 9, 2007 we sold a building and lot adjacent to our facility in West Lafayette, IN that was not being utilized in our operations, recognizing a loss on the sale of $98. The loss was recorded in our results for the three and six months ended March 31, 2007. The net realizable value of the asset is shown as Asset Held for Resale in our balance sheet at March 31, 2007.
7. Income Taxes

We have providedcomputed income taxes using an overall effective tax benefitsrate of 41.5% on our consolidated domestic losses based onincome, which is our expected annual effective rateestimate of taxesour combined federal and local tax rates for the current fiscal year. In the threesix months ended DecemberMarch 31, 20062007 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.


7.8. Stock Option Plans

The Company established an Employee Stock Option Plan whereby options to purchase the Company’s common shares at fair market value at date of grant can be granted to our employees. Options granted become exercisable in four equal annual installments beginning two years after the date of grant. This plan terminates in fiscal 2008.


The Company also established an Outside Director Stock Option Plan whereby options to purchase the Company’s common shares at fair market value at date of grant can be granted to outside directors. Options granted become exercisable in four equal annual installments beginning two years after the date of grant. This plan terminates in fiscal 2008.


Options in both plans expire the earlier of ten years from grant date or termination of employment.


A summary of our stock option activity and related information for the threesix months ended DecemberMarch 31, 20062007 is as follows:

 

 

Options

 

 

 

Weighted

average

exercise

price

 

Outstanding - beginning of period 

 

403,878

 

 

 

$

4.98

 

Exercised 

 

(17,000

)

 

 

 

4.58

 

Granted 

 

20,000

 

 

 

 

5.19

 

Terminated 

 

(29,500

)

 

 

 

4.79

 

Outstanding - end of period 

 

377,378

 

 

 

$

5.04

 

Weighted grant date fair values

 

 

 

 

 

$

3.44

 


  
Six Months Ended March 31, 2007
 
  
   Options
 
Weighted
average exercise
price
 
Outstanding - beginning of period  404  
$
4.98
 
Exercised  (17)  4.48 
Granted  20   5.19 
Terminated  (40)  
4.89
 
         
Outstanding - end of period  367  
$
5.03
 
         
Weighted grant date fair values     
$
3.37
 

8


The intrinsic values of options exercised in the six months ended March 31, 2007 were $10. We received $76 from their exercise, for which no tax benefit was recognized. The options on the 367 shares outstanding at March 31, 2007 had an aggregate intrinsic value of $636 and a weighted average contract term of 6.3 years.

A summary of non-vested options for the six months ended March 31, 2007 is as follows:
  
 
 
 
Number
 
Weighted
Average
Grant Date
Fair Value
 
Non-vested options, beginning of period  278  $3.43 
Granted  20   3.49 
Vested  (49)   3.42 
Forfeited  (73)   3.51 
Non-vested options, end of period  176  $3.49 

The intrinsic values of options exercised in the three months ended DecemberAt March 31, 2006 were $10. We received $76 from their exercise, for which no tax benefit was recognized. The options on the 377,378 shares outstanding at December 31, 2006 had an aggregate intrinsic value of $226 and a weighted average contract term of 6.4 years.


A summary of non-vested options for the three months ended December 31, 2006 is as follows:

 

 

Number

 

 

Weighted Average
Grant Date
Fair Value

 

 

 

 

 

 

 

 

Non-vested options, beginning of period

 

278,378

 

 

$

3.75

 

Granted

 

20,000

 

 

 

5.19

 

Vested

 

(17,500

)

 

 

3.54

 

Forfeited

 

(22,500

)

 

 

3.54

 

Non-vested options, end of year

 

258,378

 

 

$

3.43

 

 

 

 

 

 

 

 

 

At December 31, 2006,2007, there were 119,000191 shares vested, all of which were exercisable. The weighted average exercise price for these shares was $5.29$5.03 per share; the aggregate intrinsic value of these shares was $72$341 and the weighted average remaining term was 6.0 years.

At DecemberMarch 31, 2006,2007, there are 309,875were 320 shares available for grants under the two plans.

The following applies to options outstanding at DecemberMarch 31, 2006:

Range of

exercise prices

 

Number outstanding at

December 31, 2006

Weighted
average
remaining
contractual
life (years)

Weighted
average
exercise
price

Number exercisable
at December 31, 2006

Weighted
average
exercise
price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2.80 - 4.58

 

 

160,000

 

 

6

.39

 

4

.35

 

64,500

 

 4

.34

$

4.96 - 5.74

 

 

200,378

 

 

8

.28

 

5

.33

 

37,500

 

 5

.69

$

7.18 - 8.00

 

 

17,000

 

 

0

.90

 

8

.00

 

17,000

 

 8

.00

2007:

Range of exercise prices
 
Number outstanding
at March 31,
2007
 
Weighted
average
remaining
contractual
life (years)
 
Weighted
average
exercise
price
 
Number exercisable
at March 31, 2007
 
Weighted
average
exercise
price
 
$2.80 - 4.58    160  5.56  4.35  106  4.33 
 $4.96 - 5.74    190  7.54  5.34  68  5.37 
  $7.18 - 8.00    17  0.15  8.00  17  8.00 
At DecemberMarch 31, 2006,2007, we had $437$150 of compensation expense to be recognized for non-vested options with a weighted average vesting period of 3.031.55 years.

9.Recently Issued Accounting Standards
In February, 2007 the Financial Accounting Standards Board (“FASB’) issued FASB Statement Number 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement allows the use of fair values for certain financial instruments in financial statements for years beginning after November 15, 2007. While we have not completed an evaluation of the impact of electing to use fair values for valuing these items in our financial statements, it does not appear likely that we will elect to use the fair values allowed in this statement.
9

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


This Form 10-Q may contain “forward-looking"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’sBASi's intent, belief or current expectations with respect to (i) BASi’sBASi's strategic plans; (ii) BASi’sBASi's future profitability; (iii) BASi’sBASi's capital requirements; (iv) industry trends affecting the Company’sCompany's financial condition or results of operations; (v) the Company’sCompany's sales or marketing plans; or (vi) BASi’sBASi's growth strategy. Investors in BASi’sBASi's Common Shares are cautioned that reliance on any forward-looking statement involves risks and uncertainties, including the risk factors contained in BASi’s annual report on Form 10-K for the year ended September 30, 2006. 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’sBASi's plans and objectives will be achieved.

All dollar amounts presented in this discussion and analysis are presented in thousands, except per share data.

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 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 Report on Form 10-K for the year ended September 30, 2006, we commented on the impacts and anticipated impacts developments in the pharmaceutical industry have on our businesses, as well as some of the material potential risks.risks posed to our business by these industries. Those comments are still applicable, and are found under “General” in Part I, Item 2 of that report.

10

RESULTS OF OPERATIONS


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

 

 

Three Months Ended
December 31,

 

 

 

2006

 

2005

 

Service revenue

 

79.1

%

76.6

%

Product revenue

 

20.9

 

23.4

 

Total revenue

 

100.0

 

100.0

 

 

 

 

 

 

 

Cost of service revenue (a)

 

76.9

 

77.8

 

Cost of product revenue (a)

 

38.5

 

36.3

 

Total cost of revenue

 

68.9

 

68.1

 

 

 

 

 

 

 

Gross profit

 

31.1

 

31.9

 

 

 

 

 

 

 

Total operating expenses

 

24.4

 

41.2

 

 

 

 

 

 

 

Operating income (loss)

 

6.7

 

(9.3

)

 

 

 

 

 

 

Other (expense)

 

(2.1

)

(2.6

)

 

 

 

 

 

 

Income (loss) before income taxes

 

4.6

 

(11.9

)

 

 

 

 

 

 

Income tax expense (benefit)

 

(0.5

)

(4.6

)

 

 

 

 

 

 

Net income

 

5.1

%

(7.3

)%

(a)

Percentage of service and product revenues, respectively.


  
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
  2007 2006 2007 2006 
Service revenue  77.1% 81.0% 78.1% 79.0%
Product revenue  22.9  19.0  21.9  21.0 
Total revenue  100.0  100.0  100.0  100.0 
              
Cost of service revenue (a)
  79.8  67.2  78.4  71.8 
Cost of product revenue (a)
  45.0  30.7  42.0  33.4 
Total cost of revenue  71.9  60.3  70.4  63.7 
              
Gross profit  28.1  39.7  29.6  36.3 
              
Total operating expenses  24.1  30.3  24.3  35.1 
              
Operating income  4.0  9.4  5.3  1.2 
              
Other expense  (1.9) (2.0) (2.0) (2.3)
              
Income (loss) before income taxes  2.1  7.4  3.3  (1.1)
              
Income tax provision (benefit)  1.0  3.1  0.2  (0.3)
Net income (loss)  1.1% 4.3% 3.1% (0.8)%
(a) Percentage of service and product revenues, respectively.
10

Three Months Ended DecemberMarch 31, 20062007 Compared to Three Months Ended DecemberMarch 31, 20052006


Service and Product Revenues

We increased our


Revenues for the second fiscal quarter ended March 31, 2007 decreased 9% to $11.3 million compared to $12.4 million for the second quarter last year. Our Service segment revenue decreased by 13% from $10.1 million to $8.7 million compared to the comparable period last year. This was primarily the result of a decline in revenues in our first fiscalbioanalytical laboratories, where revenues in the year earlier quarter were particularly strong due to a large study in that quarter that had been rescheduled from an earlier quarter. Our toxicology revenues increased $0.4 million (a 10% increase), reflecting the continued health of the current year by $1,040, or 11%our toxicology operations. Revenue in our Baltimore clinic increased 4% over the comparable quarter last year. Inyear, reflecting our Service segment, revenue from our bioanalytical services increased $1.0 million (a 25% increase), toxicology revenues increased $0.6 million (a 32% increase), offset by a decrease of $0.5 millioncontinuing effort to cultivate new clients for these services. Sales in our Baltimore clinical research unit (a 33% decrease). The decline in our Baltimore clinical research unit was due to the loss of a significant customerProducts segment increased 9.3% from $2.4 million in our second fiscal quarter of 2006. This facility also had a strong quarterlast year to $2.6 million in the comparable period in the last fiscal year, which impacts the comparisoncurrent quarter. Sales of comparable periods. The improvements in our bioanalytical services and toxicology operations reflect a continued healthy market for those services, as well as successful sales efforts. Product segment revenues had a decline of $29, or 1%, from the comparable period last year. Our Culex automated pharmacology systems had improvedshowed continued strength posting a $0.5 million increase over the same period last year. The Culex systems improvement in sales compared to the first quarter of fiscal 2006,was offset by declines in our more mature products.

Cost of Revenues

Cost of revenues for the second quarter ended March 31, 2007 was $8.1 million or 72% of revenue compared to $7.5 million, or 60% of revenue for the second quarter last year. Our cost of Service revenuesrevenue as a percentage of Service revenues decreased to 76.9%revenue increased from 67% in the currentsecond fiscal quarter comparedlast year to 77.8% for80% in the same period last year.quarter ended March 31, 2007. A substantial portion of our cost of productive capacity (personnel, facilities and laboratory equipment) is relatively fixed, resulting in a declininghigher cost of services as a percentage of sales aswhen compared to the same period a year ago due to the revenue decrease. The revenue decrease did not create a corresponding decrease in the costs of productive capacity. In addition, we increase revenues. As announced in September 2006, we reduced the number of personnel throughouttransferred our organization in order to reduce costs. As a result, Service revenues increased $1,069, ourpre-clinical services payroll related costs of Service revenues increased $758, improvingfrom our margin as a percentage of sales. Included in ourresearch group to cost of service revenue in the quarter ended December 31, 2006 is a cost accrual of $325 forservices. Similarly, our costs to be incurred for repeating a study, without which we would have had further margin improvement. Our cost of Product revenue as a percentage of Product revenue is predominately determined by production volume. Although salesincreased from 31% to 45%. A substantial portion of Productproducts shipped in the quarter ended March 31, 2007 were manufactured in the prior quarter, with manufacturing activity lower in the current fiscal quarter. This resulted in under-absorption of manufacturing costs in the current quarter, were similar to the first quarter of the prior year, manufacturing activity was reduced, resultingwhich is included in larger unabsorbed manufacturing costs, which were charged to cost of Product revenue, resulting in an increase in cost as aproducts and raises the percentage of Product revenue, 38.5% this quartercosts compared to 36.3% insales.
Operating Expenses
Selling expenses for the same quarter last year.

11

Operating Expenses

Our selling expensesthree months ended March 31, 2007 decreased by $54 (7%)1% to $673 thousand from $680 thousand for the three months ended March 31, 2006. There were no significant changes in our first fiscal quarter compared tosales efforts between the same quarter in the prior year, which was the result of decreased travel and trade show expenses.comparable quarters. Research and development expenses for the three months ended March 31, 2007 decreased by $84 (19%) in50% to $101 thousand from $201 thousand for the first fiscal quarter compared to the comparable period last yearthree months ended March 31, 2006 as a result of $118 thousand of payroll costs related to the commercialization of our reductionpharmacokinetics and pharmacodynamics services being transferred from our research group to cost of services in personnel in September 2006. the current quarter.

General and administrative expenses for the three months ended DecemberMarch 31, 20062007 decreased 44%35% to $1,622$1.9 million, down from $2,887$2.9 million for the three months ended DecemberMarch 31, 2005. This decrease was2006. The major contributors to our cost reduction were the result of several factors: 1) our September 2006strategic reduction in personnel 2)in September 2006, the reductionimpairment charge taken on the Baltimore clinic in amortization expensefiscal 2006 reducing our expenses in the current periodyear, and a shift to utilization of temporary personnel in the Baltimore clinic which enables us to reduce personnel costs when the clinic is not occupied. We also recorded a loss of $98 thousand on the sale of an excess building adjacent to our main facility in West Lafayette, IN.
Other Income (Expense)
Our interest expense declined $18 thousand to $230 thousand due to lower average outstanding borrowings between the impairment charge for our Baltimore clinic recordedcomparable quarters, in the third quarterspite of fiscal 2006, 3) a change to heavier reliance on “as needed” personnel in our Baltimore clinic reduced the excess costs that were absorbed in general and administrative expenses, and 4) our efforts to contain all other costshigher short term rates in the current quarter. This reduction occurred while we increasedA significant amount of our salary costs for our new Chief Executive Officer, who began with usborrowings are at the beginning of the current quarter.

Other Expense

Our interest expense decreased $17 (7%) to $241 in the current fiscal quarter from $258 infixed rates that did not change between the comparable quarter of the prior year. The decrease is attributable to lower levels of borrowing in the current year. Although our revolving credit facility has a floating interest rate which has increased since last year, we had no outstanding borrowings in the current quarter. Our long-term debt and capital leases were at the same interest rates in the comparable periods.

quarters.

Income Taxes

As a result of our loss in our Baltimore clinic, we experienced an overall loss on domestic operations in the three months ended December 31, 2006.

We computed our tax benefitprovision for the current quarter using an overall effective tax rate of 41.5% on domestic losses,earnings, which is our estimate of our combined federal and local tax rates for the current year.rate. We were able to utilize tax loss carryforwards available on our foreign earnings and therefore provided no related income tax expense.

11
Net Income (Loss)

As a result of the above factors, we had earningsincome of $556$124 thousand ($.110.03 per share, both basic and diluted) in the quarter ended DecemberMarch 31, 2006,2007, compared to a lossincome of $716$538 thousand ($.15 loss0.11 per share, both basic and diluted) in the same period last year. The computation


Six Months Ended March 31, 2007 Compared to Six Months Ended March 31, 2006

Service and Product Revenues

Revenues for the six months ended March 31, 2007 were relatively unchanged: $22.2 million as compared to $22.3 million for the six month period last year. Service revenue decreases of average outstanding shares2% were the result of a decline in our Baltimore clinical research unit revenues of $1.4 million due to the loss of a significant customer in our second fiscal quarter of 2006. This decrease was partially offset by increases of $0.3 million and $0.2 million in our U.K. and Oregon bioanalytical laboratories respectively, along with an increase of $0.4 million in toxicology revenues. Revenues for our Products increased 4% for the six months, due to the items cited in the current quarter.
Cost of Revenues
Cost of revenues for the six months ended March 31, 2007 was $15.6 million or 70% of revenue compared to $14.2 million, or 64% of revenue for the same period included dilutive options, whereas options were not includedlast year. Both the cost of Service revenue and the cost of Product revenue increased as a percentage of Service revenues and Product revenues, respectively, due to the items cited in the computationcurrent quarter.
Operating Expenses
Selling expenses for both the six months ended March 31, 2007 and the six months ended March 31, 2006 were unchanged at $1.4 million each. Research and development expenses for the six months ended March 31, 2007 decreased 29% to $456 thousand from $639 thousand for the six months ended March 31, 2006, due to personnel previously charged to research and development now being charged to cost of diluted earningsservices as we commercialize our pharmacokinetics and pharmacodynamics services, which had previously been in development.
General and administrative expenses for the six months ended March 31, 2007 decreased 39% to $3.5 million, down from $5.8 million for the six months ended March 31, 2006 due to items cited in the similarcurrent quarter.
Other Income (Expense)
Interest expense decreased 7% from $508 thousand to $471 thousand in the six months ended March 31, 2007 from the comparable period lastof the prior year as they were anti-dilutive.a result of reduced average outstanding borrowings.
Income Taxes
We computed our income tax using an effective tax rate of 41.5% on domestic earnings for the six months ended March 31, 2007. 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. The effectincome tax benefit for the six months ended March 31, 2006 was computed using an effective tax rate of conversion42.5% on the US taxable losses, the effective benefit was reduced by an accrual for an additional $30 thousand for settlement of our outstanding convertible subordinated debentures was anti-dilutivea disputed state tax liability.
Net Income (Loss)
As a result of the above, we had income of $680 thousand ($0.14 per share, both basic and diluted) for the first six months of the current year, compared to a net loss in the prior year of $178 thousand ($0.04 loss per share, both years.

basic and diluted).

12
LIQUIDITY AND CAPITAL RESOURCES


Comparative Cash Flow Analysis

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 DecemberMarch 31, 2006,2007 we had cash and cash equivalents of $1,863$1.4 million, compared to cash and cash equivalents of $1,647$1.6 million at September 30, 2006. Approximately 14%26% of our cash balances were in the U.K.U.K at March 31, 2007 as compared to 60% at March 31, 2006. 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 generatedprovided by operating activities was $1,157$0.4 million for the threesix months ended DecemberMarch 31, 2007 compared to $1.1 million for the six months ended March 31, 2006. This was the result of the earnings for the quarter to which is added our non-cash charges for depreciation and amortization, plus good collections on ouroffset by receivables duringbalances increasing as a result of new contracts, a building held for resale, and working down the period.balances in customer deposits and accrued expenses. The impact on cash flow of other changes in operating assets and liabilities net, was not material.

Net cash usedprovided by investing activities increased to $268 forwas $0.3 million in the threesix months ended DecemberMarch 31, 2006 from $146 for the three months ended December 31, 20052007 as a result of the netting of disposals (including a building in West Lafayette) against routine equipment purchases. We paid $563Additionally, we repaid $0.8 million of principal on our long-term debt and capital leases in the current quarter.

12

six months ended March 31, 2007.

Capital Resources

We have a $6,000$6.0 million revolving credit agreement with a commercial bank which extends until December 31, 2007. We may utilize up to that amount based upon our qualifying inventory and accounts receivable.

We are in discussions with our bank to extend this facility beyond its expiration date.

We have an outstanding letter of credit securing our lease on our Baltimore facility for $2,000. This letter of credit was reduced under its terms to $1,000 in January 2007, and$1.0 million, which expires in January 2008. ThisThe letter of credit reduces our amounts available under our revolving credit facility byfacility.

We have $4.0 million of convertible subordinated debt, which becomes due on January 1, 2008. Accordingly, the entire amount is presented in current portion of long-term debt in the balance outstanding.

sheet at March 31, 2007. The debt is convertible at $16 per share into common stock, a conversion price that makes it unlikely to be converted before its maturity. This debt is subordinated to our bank debt, and cannot be repaid without the consent of our senior lenders. We are currently exploring options to refinance this debt, including acquiring additional mortgage debt, extending the terms of the debt, and obtaining funds by a private placement of debt or equity securities.

We expect our total capital additions in fiscal 2007 to be in the range of $1,000$1.0 million to $1,200, which we$1.2 million. We expect to fund these capital expenditures from operating cash flow.

Liquidity

We do not foresee the need to borrow extensively under our revolving credit agreement to finance current operations, unless we experienceexcept for periods when rapid growth of new business which may necessitate borrowingsborrowing to finance the buildup of receivables and inventory.


At DecemberMarch 31, 2006,2007, we had $1,863$1.4 million in cash, and $1,760 ofapproximately $4.0 million 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 $6,000$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’sbank's prime rate to prime rate plus 50 basis points, or at the LIBOR rate plus 325 basis points, at our election. We pay a facility fee equal to 37.5 basis points on the unused portion of the line of credit. We have certain financial ratio covenants in our loan agreement, all of which were met in the quarter ended DecemberMarch 31, 2006.

2007.

13

We are required to make cash payments in the future on debt and lease obligations. The following table summarizes BASi’sBASi's contractual term debt, lease obligations and other commitments at DecemberMarch 31, 20062007 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (amounts presented for 2007 are those items required in the periods ending September 30:

 

 

2007

 

 

2008

 

 

2009

 

 

2010

 

 

2011

 

 

After 2011

 

 

Total

 

Capital expenditures

 

$

250

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

250

 

Mortgage notes payable

 

 

275

 

 

 

384

 

 

 

406

 

 

 

431

 

 

 

456

 

 

 

6,507

 

 

 

8,459

 

Subordinated debt

 

 

—

 

 

 

4,477

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,477

 

Capital lease obligations

 

 

358

 

 

 

510

 

 

 

553

 

 

 

453

 

 

 

132

 

 

 

—

 

 

 

2,006

 

Operating leases

 

 

1,605

 

 

 

491

 

 

 

69

 

 

 

8

 

 

 

—

 

 

 

—

 

 

 

2,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,488

 

 

$

5,862

 

 

$

1,028

 

 

$

892

 

 

$

588

 

 

$

6,507

 

 

$

17,365

 

final two quarters):


  
2007
 
2008
 
2009
 
2010
 
2011
 
After 2011
 
Total
 
Capital expenditures 
$
200
 $ 
—
 $ 
—
 $ 
—
 $ 
—
 $ 
—
 $200 
Mortgage notes payable  
183
 
 
384
 
 
407
  431  456  6,507  8,368 
Subordinated debt  
—
  
4,477
  
—
  
—
  
—
  
—
  4,477 
Capital lease obligations  
241
  
510
  
553
  453  132  
—
  1,889 
Operating leases  
1,042
  491  
69
  8  
—
  
—
  1,610 
  
$
1,666
 
$
5,862
 
$
1,029
 $892 $588 $6,507 $16,544 

For further details on our indebtedness, see Note 67 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2006.

The covenants in the Company’sCompany'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’sCompany's working capital and capital expenditure requirements for the foreseeable future. InAs discussed above, in January, 2008 our subordinated notes of $3,999$4.0 million from a 2003 acquisition become due. We are exploring various alternatives to fund that obligation.

14

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 Revolving Credit Agreement between BASi and National City Bank dated January 4, 2005 bear interest at a rate of either the bank’s prime rate plus 50 basis points, or at the LIBOR rate plus 325, at BASi’s option. We have fixed our interest rate on our mortgage debt through May, 2007.


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 2006 and 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

amount in fiscal year 2007.


ITEM 4. CONTROLS AND PROCEDURES

Based on their most recent evaluation, the Company’sCompany's Chief Executive Officer and Chief Financial Officer believe that the Company’sCompany's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of DecemberMarch 31, 20062007 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’sCommission's rules and forms.

There were no significant changes in the Company’s internal controls or other factors that could significantly affect those controls subsequent to the date of their evaluation, which was completed as of September 30, 2006.

14
PART II - OTHER INFORMATION
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

On February 15,

ITEM 6.

EXHIBITS

2007, the Annual Meeting of Shareholders of BASi was held at the principal executive offices of BASi. The following matters were voted on at the meeting:


 
MATTER:
 
 
VOTES CAST FOR
 
VOTES CAST
AGAINST
 
 
ABSTENTION
 
        
Election of the directors of BASi:       
Peter T. Kissinger  4,275,694  413,767  202,666 
Candice B. Kissinger  4,393,649  295,812  202,666 
William E. Baitinger  4,616,280  73,181  202,666 
David W. Crabb  4,673,880  15,581  202,666 
Leslie B. Daniels  4,682,469  6,992  202,666 
ITEM 6. EXHIBITS

Exhibits

Number assigned

in Regulation S-K

Item 601

 

Description of Exhibits

 

 

 

 

(3)

3.1

 

Second Amended and Restated Articles of Incorporation of Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 1997).

 

 

3.2

 

Second Amended and Restated Bylaws of Bioanalytical Systems, Inc., as subsequently amended.*

 

(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).

 

(31)

31.1

 

Certification of Richard M. Shepperd*

 

 

31.2

 

Certification of Michael R. Cox*

 

(32)

32.1

 

Section 1350 Certifications*

*


Number assigned
in Regulation S-K 
Item 601 
 Description of Exhibits
    
(3)3.1 Second Amended and Restated Articles of Incorporation of Bioanalytical Systems, Inc. (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarter ended December 31, 1997).
    
 3.2 Second Amended and Restated Bylaws of Bioanalytical Systems, Inc. as subsequently amended. †
    
(4)4.1 Specimen Certificate for Common Shares (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1, Registration No. 333-36429).
    
(10)10.1 Employment Agreement by and among Bioanalytical Systems, Inc. and Richard M. Shepperd, entered into on, January 11, 2007 to be effective October 2, 2006 (incorporated by reference to Exhibit 10.1 of Form 8-K filed January 17, 2007).
    
(31)31.1 Certification of Richard M. Shepperd †
    
 31.2 Certification of Michael R. Cox †
    
(32)32.1 Section 1350 Certifications †
† Filed with this Quarterly Report on Form 10-Q.

16

15

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.

Date: February 12, 2007

By: /s/  RICHARD M. SHEPPERD

Richard M. Shepperd

Chief Executive Officer

(Principal Executive Officer)

Date: February 12, 2007

By: /s/ MICHAEL R. COX

Michael R. Cox

Vice President-Finance

and Chief Financial Officer

(Principal Financial and Accounting Officer)

17


BIOANALYTICAL SYSTEMS, INC.


By:  /s/ RICHARD M. SHEPPERD
Richard M. Shepperd
Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2007

By:  /s/ MICHAEL R. COX
Michael R. Cox
Vice President-Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 9, 2007
16