Gayl W .Doster has served as a director and member of the Audit Committee of the Company since August 2004. Mr. Doster is also a director of META Group, Inc., a publicly traded NASDAQ company. He is a CPA and was the President and Chief Operating Officer of Sigma Micro Corporation, a computer software company from January 1997 until his retirement in December 2002. Previously, Mr. Doster served as Professor of Community Pharmacy Management, College of Pharmacy, University of Rhode Island from October 1995 to January 1997. Mr. Doster received a BS in Accounting from the Indiana University Kelley School of Business and earned his CPA in 1965 while working for Ernst & Young.

W. Leigh Thompson, Ph.D., M.D.Family Relationships, has served as a director of BASi since January 1997. Since 1995, Dr. Thompson has been Chief Executive Officer of Profound Quality Resources, Inc., a scientific consulting firm. Prior to 1995, Dr. Thompson was Professor of Medicine at Case Western Reserve and Indiana Universities, President of the Society of Critical Care Medicine and Chief Scientific Officer at Eli Lilly and Company. He earned a Bachelor of Science degree in Biology from the College of Charleston, a Master of Science and a Ph.D. in Pharmacology from the Medical University of South Carolina, a Medical Doctor degree from The Johns Hopkins University and was awarded a Ph.D. of Science from the Medical University of South Carolina. Dr. Thompson is also a director and Chairman of the Board of Inspire Pharmaceuticals, Inc.

SCIENTIFIC ADVISORY BOARD
In 1985, BASi established a Scientific Advisory Board to assist BASi in its research and development activities. The Scientific Advisory Board is comprised of distinguished scientists from outside BASi who have significant accomplishments in areas of science and technology that are important to BASi’s future. The Scientific Advisory Board interacts with BASi’s scientific and management staff. Each member of the Scientific Advisory Board is employed outside BASi and may have commitments to, or consulting or advisory contracts with, other entities that may conflict or compete with his or her obligations to BASi. Generally, members of the Scientific Advisory Board are not expected to devote a substantial portion of their time to BASi matters. Members of the Scientific Advisory Board do not receive any compensation in connection with attending meetings of the Scientific Advisory Board. They do, however, from time to time, receive compensation in connection with consulting services they render to BASi.

FAMILY RELATIONSHIPS
Peter T. Kissinger and Candice B. Kissinger are husband and wife. There is no other family relationship among the directors and executive officers of BASi.

Compensation of Directors

COMPENSATION OF DIRECTORS
Directors who are not employees of BASi receive $1,500$2,000 for each Board meeting attended, plus out-of-pocket expenses incurred in connection with attendance at such meetings. Directors of BASi or an affiliate of BASi who are not employed by BASi or any affiliate may also participate in the BASi 1997 Outside Director Stock Option Plan, as may be approved from time to time by the Compensation Committee. Options were issued to William E. Baitinger and W. Leigh Thompson in fiscal 2003, in the amount of 9,000 shares each. Option grants of 5,000 each were issued to David W. Crabb and Gayl W. Doster in fiscal 2004. Directors who are employees of BASi do not receive any additional compensation for their services as directors.

CERTAIN RELATIONSHIPS AND TRANSACTIONS
Leslie B. Daniels, a directorCommittees and Meetings of the Company currently nominated for reelection, made various loans to PharmaKinetics Laboratories, Inc. (“PKLB”) totaling $350,000 prior to the Company’s acquisitionBoard of PKLB. These loans were consolidated into a $350,000 promissory note which was convertible into shares of common stock of PKLB (the “PKLB Note”). On December 31, 2003, BASi Maryland, Inc. (the former PKLB) assigned the PKLB Note to the Company. On that same date, the Company issued a $350,000 8% convertible note (the “New Note”) to Mr. Daniels in exchange for the PKLB Note, which was cancelled. Immediately following the issuance of the New Note on December 31, 2003, the Company prepaid $100,000 of the outstanding principal amount of the New Note, plus approximately $31,000 in accrued interest, and Mr. Daniels converted $150,000 of the principal amount of the New Note into 38,042 Company common shares. Following the payment and conversion, the Company issued a new 8% convertible note due June 1, 2005, to Mr. Daniels for the remaining $100,000 principal amount.Directors

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COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has established Compensation and Incentive Stock Option, Audit, Nominating and ExecutiveNominating Committees. Scheduled meetings are supplemented by frequent informal exchange of information and actions taken by unanimous votes without meetings.

No member of the Board of Directors attended fewer than 75% of the meetings of the Board of Directors and meetings of any committee of the Board of Directors of which he or she was a member. FourThree out of sixfive members of the Board of Directors attended the 20042006 Annual Meeting of shareholders. All of the members of the Board of Directors are encouraged, but not required, to attend BASi’s annual meetings. The following chart shows the number of meetings of each of the committees of the Board of Directors and meetings of the Board of Directors at which a quorum was present:

Committee			Members			Meetings in 20042006
Compensation and Incentive Stock Option	William E. Baitinger Leslie B. Daniels Gayl W. Doster W. Leigh Thompson	3
Audit	William E. Baitinger Leslie B. Daniels Gayl W. Doster W. Leigh Thompson	3
		2
Nominating			Leslie B. Daniels
			David W. Crabb
Audit			William E. Baitinger David W. Crabb Leslie B. Daniels Gayl W. Doster W. Leigh Thompson	2
		5
Executive	Peter T. Kissinger		Leslie B. Daniels
			David W. Crabb
Nominating			William E. Baitinger W. Leigh Thompson	4			0
			David W. Crabb
			Leslie B. Daniels
Board of Directors							5

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TheCompensation and Incentive Stock Option Committee makes recommendations to the Board of Directors with respect to:

        • compensation arrangements for the executive officers of BASi,

        • policies relating to salaries and job descriptions,

        • insurance programs,

        • benefit programs, including retirement plans,

        • administration of the 1990 and 1997 Employee Incentive Stock Option Plans, and

        • the 1997 Outside Director Stock Option Plan.

TheAudit Committee is responsible for:

        • reviewing with the auditors the scope of the audit work performed,

        • establishing audit practices,

        • overseeing internal accounting controls,

        • reviewing financial reporting, and

        • accounting personnel staffing.

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The Board of Directors has adopted a written charter for the Audit Committee.Committee, a copy of which is included as attachment A to BASi’s Proxy Statement for fiscal 2005. Audit Committee members are not employees of BASi and, in the opinion of the Board of Directors, are “independent” (as defined by Rule 4200(a)(15) of the NASD listing standards). The Board of Directors has determined that Gayl W. DosterLeslie B. Daniels is an “audit committee financial expert” (as defined by Item 401(h) of Regulation S-K) and is “independent” (as defined by Item 7(d)(3)(iv) of Schedule 14A).

TheNominating Committee is responsible for receiving and reviewing recommendations for nominations to the Board of Directors and recommending individuals as nominees for election to the Board of Directors. Nominating Committee members are not employees of BASi and, in the opinion of the Board of Directors, are “independent” (as defined by rule 4200 (a)(15) of the NASD listing standards). The Board of Directors has not adopted a written charter for the Nominating Committee.

The BoardShareholders of Directors will consider for nomination asBASi may nominate directors persons recommended by shareholders. Such recommendationsproviding timely notice thereof in proper written form to the Secretary of BASi. To be timely, a shareholder’s notice to the Secretary must be madedelivered to or mailed and received at the principal executive offices of BASi (a) in the case of an annual meeting, not less than ninety days nor more than one hundred twenty days prior to the Boardanniversary date of Directorsthe immediately preceding annual meeting; and (b) in the case of a special meeting of shareholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which notice of the date of the special meeting was mailed or to an individual directorpublic disclosure of the date of the special meeting was made, whichever first occurs.

To be in writing and delivered to Bioanalytical Systems, Inc., Attention: Corporate Secretary, 2701 Kent Avenue, West Lafayette, Indiana 47906. The Secretary will forward all such communicationsproper written form, a shareholder’s notice to the addressee.Secretary must set forth (a) as to each person whom the shareholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of BASi which are owned beneficially or of record by the person, and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the ”Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the shareholder giving the notice (i) the name and record address of such shareholder, (ii) the class or series and number of shares of capital stock of BASi which are owned beneficially or of record by such shareholder, (iii) a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such shareholder, (iv) a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice, and (v) any other information relating to such shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

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The chair of the Nominating Committee or his or her designee shall have the authority to determine whether a nomination is properly made in accordance with the foregoing procedures. If the chair of the Nominating Committee or his or her designee determines that a nomination was not made in accordance with the foregoing procedures, the chairman of the meeting shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

There is no fixed process for identifying and evaluating potential candidates to be nominees for directors, and there is no fixed set of qualifications that must be satisfied before a candidate will be considered. Rather, the Nominating Committee has the flexibility to consider such factors as it deems appropriate. These factors may include education, diversity, and experience with business and other organizations comparable with BASi, the interplay of the candidate’s experience with that of other members of the Board of Directors, and the extent to which the candidate would be a desirable addition to the Board of Directors and to any of the committees of the Board of Directors. The Nominating Committee will evaluate nominees for directors submitted by shareholders in the same manner in which it evaluates other director nominees. No shareholder has properly nominated anyone for election as a director at the Annual Meeting.

TheExecutive Committee may exercise all of the authority of the Board of Directors, subject to certain limitations with respect to payment of dividends, filling of vacancies on the Board, amendment of the Articles of Incorporation or Bylaws, approval of significant corporate transactions, issuance of shares and other matters specified under Indiana law. The Executive Committee met four times during fiscal 2004.

EXECUTIVE COMPENSATIONCompensation
The following table sets forth information with respect to the aggregate compensation paid during each of the last three fiscal years to BASi’s President and Chief Executive Officer and each of the other executive officers of BASi whose total compensation exceeded $100,000 during fiscal 20042006 (the “Named Executive Officers”).

						SUMMARY COMPENSATION TABLE
			FISCAL YEAR			SALARY			ALL OTHER COMPENSATION			OPTIONS GRANTED
Peter T. Kissinger, Ph.D.			2004			$	24,000		$27,380	(1)
Chairman of the Board, President			2003			$	30,683		$22,829	(1)
and Chief Executive Officer			2002			$	101,001		$28,067	(1)
Ronald E. Shoup, Ph.D.			2004			$	124,000		$7,594	(2)			40,000
Chief Operating Officer, BASi Contract			2003			$	112,700		$6,837	(2)
Research Services; Director			2002			$	113,000		$7,438	(2)
Candice B. Kissinger			2004			$	101,800		$22,401	(3)			30,000
Senior Vice President, Research;			2003			$	94,300		$26,900	(3)
Secretary and Director			2002			$	90,700		$27,822	(3)
Michael R. Cox			2004			$	76,728			(4)			50,000
Vice President, Finance and
Chief Financial Officer
Michael P. Silvon, Ph.D.			2004			$	106,000		$ 6,784	(5)			30,000
Vice President, Planning and			2003			$	98,500		$ 6,304	(5)
Development			2002			$	94,800		$ 7,074	(5)

SUMMARY COMPENSATION TABLE

		Fiscal Year				Salary			Bonus			All Other Compensation			Options Granted
Peter T. Kissinger, Ph.D			2006			$	108,284			—		$	27,801	(1)		—
Chairman of the Board,			2005			$	107,674			—		$	27,756	(1)		—
Chief Scientific Officer			2004			$	24,000			—		$	27,380	(1)		—
Richard M. Shepperd(4)			2006				—			—			—			—
President and Chief
Executive Officer
Michael R. Cox			2006			$	153,000			—		$	4,182	(3)		—
Vice President, Finance and			2005			$	152,500			—		$	4,279	(3)		—
Chief Financial Officer			2004			$	76,728			—			—			50,000
Ronald E. Shoup, Ph.D			2006			$	132,572		$	12,896		$	9,124			—
Chief Operating Officer, BASi			2005			$	128,133			—		$	7,946	(3)		—
Contract Research Services			2004			$	124,000			—		$	7,594	(3)		40,000
Edward M. Chait, Ph.D			2006			$	150,461			—			—			—
Executive Vice President			2005			$	25,000	(2)		—			—			50,000
Candice B. Kissinger			2006			$	107,697		$	10,588		$	28,435	(1)		—
Senior Vice President, Research;			2005			$	105,193			—		$	27,597	(1)		—
Secretary and Director			2004			$	101,800			—		$	22,401	(1)		30,000

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(1)

Includes premiums paid on a life insurance policy on the life of Dr. Kissinger and Mrs. Kissinger, the beneficiary of which is a trust established for their benefit, in the amount of $20,865 in each of 2003, 20022006, 2005 and 20012004 and contributions to BASi'sBASi’s 401(k) plan on Dr. Kissinger's behalf.Kissinger and Mrs. Kissinger, respectively.

(2)	Represents contributions to BASi's 401(k) plan on Dr. Shoup's behalf.

(3)	Includes premiums paid on a life insurance policy on the lives of Mrs. Kissinger and Dr. Kissinger, the beneficiary of which is a trust established for their benefit, in the amount of $20,865 in each of 2003, 2002 and 2001 and contributions to BASi's 401(k) plan on Mrs. Kissinger's behalf.

(4)	Compensation is from AprilAugust 1, 2004,2005, the date Mr. Cox'sDr. Chait’s employment with BASi was initiated.

(5)(3)

RepresentsAll other compensation contributions for Mr. Cox, Dr. Shoup and Dr. Silvon were to BASi'sBASi’s 401(k) plan on Dr. Silvon's behalf.their behalf, respectively.

(4)	Joined Company in October, 2006.

The following table provides information onThere were no option grants to the Named Executive Officers in the fiscal year ended September 30, 2004:2006.

OPTION GRANTS IN LAST FISCAL YEAR6

						INDIVIDUAL GRANTS									POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATED FOR OPTION TERM
			NUMBER OF SECURITIES UNDERLYING OPTIONS GRANTED			% OF TOTAL OPTIONS GRANTED TO EMPLOYEES IN FISCAL YEAR			EXERCISE PRICE			EXPIRATION DATE			5%				10%
Peter T. Kissinger				---			---			---			---			---				---
Ronald E. Shoup				40,000			18.3%			$  4.511		2/27/2014			$	113,478			$	287,575
Candice B. Kissinger				30,000			13.7%			$  4.960		2/27/2009			$	41,119			$	90,862
Michael R. Cox				50,000			22.8%			$  4.580		4/01/2014			$	144,017			$	364,967
Michael P. Silvon				30,000			13.7%			$  4.511		2/27/2014			$	85,108			$	215,681

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUESAggregated Option Exercises In Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth certain information concerning exercisable and unexercisable options held by the Named Executive Officers at September 30, 2004:2006:

									NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT SEPTEMBER 30, 2004						VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT SEPTEMBER 30, 2004(1)														Number of Securities Underlying Unexercised Options at September 30, 2006						Value of Unexercised In-the-Money Options at September 30, 2006(1)
			SHARES ACQUIRED ON EXERCISE			VALUE REALIZED ($)			EXERCISABLE			UNEXERCISABLE			EXERCISABLE			UNEXERCISABLE					Shares Acquired on Exercise			Value Realized ($)			Exercisable			Unexercisable			Exercisable			Unexercisable
Peter T. Kissinger				---			---			---			---			---			---				—			—				—			—			—			—
Ronald E. Shoup																							—			—				27,000			20,000		$	18,030		$	15,000
Edward M. Chait																							—			—				37,500			12,500			—			—
Michael R. Cox																							—			—				37,500			12,500		$	25,500		$	8,500
Candice B. Kissinger				---			---			1,000			30,000		$	1,240		$	29,400				—			—				11,000			20,000		$	5,510		$	4,500
Ronald E. Shoup				---			---			3,000			40,000		$	3,720		$	39,200
Michael R. Cox				---			---			---			50,000			---		$	45,500
Michael P. Silvon				---			---			3,500			500		$	6,450		$	2,150

(1)	Calculated on the basis of $5.49$5.26 per share, which was the closing price of the common shares as reported on the NASDAQ National Market System on September 30, 2004.2006.

EQUITY COMPENSATION PLAN INFORMATIONEmployment Agreements
Michael R. Cox Employment Agreement  On April 1, 2004, the Company entered into an Employment Agreement with Michael R. Cox, pursuant to which the Company agreed to employ Mr. Cox as the Chief Financial Officer of the Company through September 30, 2006. After September 30, 2006, the Employment Agreement is automatically extended for successive one year periods, until such time as either Mr. Cox or the Company gives the other party ninety days’ written notice before the end of the term, at which time, the Employment Agreement will expire at the end of the current term. The Company also agreed to pay Mr. Cox a base salary of $12,500.00 per month, and granted Mr. Cox options to purchase 25,000 common shares under the 1997 Employee Incentive Option Plan and non-qualified options to purchase 25,000 shares of common stock. Mr. Cox is subject to a confidentiality restriction during his employment and thereafter, and to non-solicitation restrictions with respect to customers and employees of BASi during his employment and for two years following termination.

The Company may, in its sole and absolute discretion, terminate Mr. Cox’s employment with the Company without cause, by providing ninety days’ written notice to Mr. Cox. In the event of a termination without cause, Mr. Cox will be paid his then current annual salary throughout the ninety-day notice period and for a period of six months thereafter, and will also be paid for all vacation time accrued as of the termination date. If Mr. Cox’s employment is terminated by the Company with cause (as defined in the Employment Agreement), the Company is not obligated to make any further payments to Mr. Cox.

Edward M. Chait Employment Agreement  On August 1, 2005, the Company entered into an Employment Agreement with Edward M. Chait, pursuant to which the Company agreed to employ Mr. Chait as the Executive Vice President, Chief Science Officer of the Company through July 31, 2007. After July 31, 2007, the Employment Agreement is automatically extended for successive one year periods, until such time as either Mr. Chait or the Company gives the other party ninety days’ written notice before the end of the term, at which time the Employment Agreement will expire at the end of the current term. The Company also agreed to pay Mr. Chait a base salary of $12,500.00 per month, and granted Mr. Chait options to purchase 25,000 common shares under the 1997 Employee Incentive Option Plan and non-qualified options to purchase 25,000 shares of common stock. Mr. Chait is subject to a confidentiality restriction during his employment and thereafter, and to non-solicitation restrictions with respect to customers and employees of BASi during his employment and for two years following termination.

At any time after July 31, 2007, the Company may, in its sole and absolute discretion, terminate Mr. Chait’s employment with the Company without cause, by providing ninety days’ written notice to Mr. Chait. In the event of a termination without cause, Mr. Chait will be paid his then current annual salary throughout the ninety-day notice period and for a period of six months thereafter, and will also be paid for all vacation time accrued as of the termination date. If Mr. Chait’s employment is terminated by the Company with cause (as defined in the Employment Agreement), the Company is not obligated to make any further payments to Mr. Chait.

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Richard M. Shepperd Employment Agreement.  On September 25, 2006, Mr. Shepperd was elected as the President and Chief Executive Officer of BASi, and the Compensation Committee determined Mr. Shepperd’s compensation. On January 11, 2007, the Board of Directors ratified the decision of the Compensation Committee and approved a written Employment Agreement with Richard M. Shepperd to memorialize the terms approved by the Compensation Committee effective October 2, 2006, the date Mr. Shepperd began his active employment with BASi. Pursuant to the Employment Agreement, BASi agreed to employ Mr. Shepperd as the President and Chief Executive Officer of BASi through February 28, 2007. After February 28, 2007, the Employment Agreement is automatically extended for successive three-month periods, until such time as either Mr. Shepperd or BASi gives the other party thirty days’ written notice before the end of the term, at which time the Employment Agreement will expire at the end of the then-current term. BASi agreed to pay Mr. Shepperd a base salary of $35,000.00 per month, plus a quarterly bonus equal to 10% of BASi’s annual earnings before interest, taxes, depreciation and amortization, capped at $150,000 per quarter. Mr. Shepperd will also be eligible for a discretionary, performance-based bonus determined by the Board of Directors to be paid at the end of his term of service. In addition to reimbursement of business expenses in accordance with BASi’s standard reimbursement policies, Mr. Shepperd will be entitled to reimbursement for reasonable expenses for living quarters in the Lafayette, Indiana area during the term of his employment, travel to and from his residence in the Henderson, Nevada area once per month, Mr. Shepperd is subject to a confidentiality restriction during his employment and thereafter, and to non-solicitation restrictions with respect to customers and employees of BASi during his employment and for two years following termination.

BASi may, in its sole and absolute discretion, terminate Mr. Shepperd’s employment with BASi, with or without cause, by providing five days’ written notice to Mr. Shepperd. In the event of termination, Mr. Shepperd will be paid his salary and a pro-rata portion of any quarterly bonus through the termination date, and will also be paid for all vacation time accrued as of the termination date.

Equity Compensation Plan Information
BASi maintains stock option plans that allow for the granting of options to certain key employees and directors of BASi. The following table gives information about equity awards under the stock option plans of BASi:

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PLAN CATEGORY			NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF OUTSTANDING OPTIONS			WEIGHTED AVERAGE EXERCISE PRICE OF OUTSTANDING OPTIONS			NUMBER OF SECURITES REMAINING AVAILABLE FOR FUTURE ISSUANCE UNDER THE EQUITY COMPENSATION PLAN (EXCLUDING SECURITIES) REFLECTED IN FIRST COLUMN
Plan Category												Plan Category		Number of Securities to be Issued upon Exercise of Outstanding Options			Weighted Average Exercise Price of Outstanding Options			Number of Securities Remaining Available for Future Issuance under the Equity Compensation Plan (excluding Securities Reflected in First Column)
Equity compensation plans approved
by security holders				317,500			$4.67			109,750				353,870		$	4	.96		300,373
Equity compensation plans not
approved by security holders				25,000			$4.58			---
Equity compensation plans not approved
by security holders															50,000		$	5	.14		—
Total				342,500			$4.66			109,750				403,870		$	4	.98		300,373

For additional information regarding BASi’s stock option plans, please see Note 98 in the Notes to Consolidated Financial Statements in BASi’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004,2006, which is incorporated herein by reference.

REPORT OF THE COMPENSATION AND INCENTIVE STOCK OPTION COMMITTEEReport of the Compensation and Incentive Stock Option Committee
William E. Baitinger, Leslie B. Daniels Gayland David W. Doster and W. Leigh ThompsonCrabb serve on the Compensation and Incentive Stock Option Committee (the “Compensation Committee”). The Compensation Committee has responsibility for the administration of BASi’s executive compensation program. None of BASi’s executive officers serves as a director of, or in any compensation-related capacity for, companies with which members of the Compensation Committee are affiliated. The following report is submitted by the members of the Compensation Committee:

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BASi’s executive compensation program is designed to align executive compensation with financial performance, business strategies and the values and objectives of BASi. BASi’s compensation philosophy is to ensure that the delivery of compensation, both in the short and long term, is consistent with the sustained progress, growth and profitability of BASi and acts as an inducement to attract and retain qualified individuals. This program seeks to enhance the profitability of BASi, and thereby enhance shareholder value, by linking the financial interests of BASi’s executives with those of its long-term shareholders. Under the guidance of BASi’s Compensation Committee, BASi has developed and implemented an executive compensation program to achieve these objectives while providing executives with compensation opportunities that are competitive with companies of comparable size in related industries.

BASi’s executive compensation program has been designed to implement the objectives described above and is comprised of the following fundamental elements:

•    A base salary that is determined by individual contributions and sustained performance within an established competitive salary range. Pay for performance recognizes the achievement of financial goals, accomplishment of corporate and functional objectives, and performance of individual business units of BASi.

A base salary that is determined by individual contributions and sustained performance within an established competitive salary range. Pay for performance recognizes the achievement of financial goals, accomplishment of corporate and functional objectives, and performance of individual business units of BASi.

•    Grants of options under BASi’s option plans reward executives when shareholder value is created through increase in the market value of BASi’s common shares. Stock option grants focus executives on managing BASi from the perspective of an owner with an equity position in the business.

Grants of options under BASi’s option plans reward executives when shareholder value is created through increase in the market value of BASi’s common shares. Stock option grants focus executives on managing BASi from the perspective of an owner with an equity position in the business.

Base Salary.Salary.  The salary, and any periodic increase thereof, of the President and Chief Executive Officer were and are determined by the Board of Directors of BASi, excluding Dr. Kissinger, based on recommendations made by the Compensation Committee, excluding Dr. Kissinger.Committee. The salaries, and any periodic increases thereof, of all other executive officers are determined by the Board of Directors based on Compensation Committee recommendations.

BASi, in establishing base salaries, levels of incidental and/or supplemental compensation, and incentive compensation programs for its officers and key executives, assesses periodic compensation surveys and published data covering both the BASi industry and other industries. The level of base salary compensation for officers and key executives is determined by both the scope of their responsibility and the salary ranges for officers and key executives of BASi established by the Board of Directors and the Compensation Committee. Periodic increases in base salary are dependent on the executive’s proficiency of performance in the individual’s position for a given period and on the executive’s competency, skill and experience.

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On his own initiative the fiscal 2003 compensation level for the President and Chief Executive Officer was significantly reduced and redistributed to select BASi staff. Dr. Kissinger’s annual base salary was returned to its previous level of $101,001 on October 1, 2004. Base salary increases for other eligible BASi staff were distributed in the first fiscal quarter of 2005.2006.

Dr. Kissinger’s annual base salary for the period October 1, 2004 to December 1, 2004 was $104,200 with an adjustment to $108,376.08 on December 1, 2004. No additional increases have occurred in fiscal year 2006.

Bonus.Bonus.  In years in which the after-tax net income of BASi exceeds an increase of 7% over the previous year’s after-tax net income, the Compensation Committee is authorized to award bonuses to any BASi employee at the Committee’s discretion. Bonuses may also be awarded at the discretion of the Board of Directors.

Option Plans.Plans.  Granting of options pursuant to BASi’s option plans is intended to align executive interest with the long-term interests of shareholders by linking executive compensation with enhancement of shareholder value. In addition, grants of options motivate executives to improve long-term stock market performance by allowing them to develop and maintain a significant long-term equity ownership position in BASi’s common shares. In fiscal 20042006 no options to purchase 234,000 shares were awarded to executives and employees at an average exercise price of $4.52 per share.awarded.

Respectfully submitted, William E. Baitinger, David W. Crabb and Leslie B. Daniels Gayl W. Doster and W. Leigh Thompson

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AUDIT COMMITTEE REPORTAudit Committee Report
The Audit Committee reviews BASi’s financial reporting process on behalf of the Board of Directors.Directors (the “Audit Committee”), of which Messrs. Baitinger, Daniels and Crabb are currently members, is responsible for selecting our independent auditors, reviewing the scope of the audit engagement and the results of the audit, approving permitted non-audit services provided by our independent auditors, reviewing our internal disclosure processes, overseeing our financial reporting activities and the accounting practices and policies followed in such reporting, overseeing complaints by employees and others as to BASi’s financial reporting, and the compliance by our employees with applicable laws, and other matters as the Board of Directors or the Audit Committee deems appropriate. The Audit Committee met five times during the year ended September 30, 2006. In fulfilling its responsibilities, the Audit Committee has reviewed the audited financial statements contained in the Annualannual Report on Form 10-K for the fiscal year ended September 30, 20042006 with BASi’s management and the independent registered public accountants. These reviews included quality, not just acceptability, of accounting principles, reasonableness of significant judgments, and clarity of disclosures in financial statements. Management is responsible for the financial statements and the reporting process, including administering the systems of internal control. The independent registered public accountants are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States.

The Audit Committee discussed with the independent registered public accountants, the matters required to be discussed by Statement on Auditing Standardsstandards No. 61, Communication with Audit Committees, as amended. In addition, the Audit Committee has discussed with the independent registered public accountants their independence from BASi and its management, including the matters in the written disclosures required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, as amended, and considered the compatibility of non-audit services with the auditors’auditor’s independence.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in BASi’s Annual Report on Form 10-K for the fiscal year ended September 30, 20042006 for filing with the SEC,Securities and the Board has so approved the audited financial statements.Exchange Commission.

Respectfully submitted, William E. Baitinger, David W. Crabb and Leslie B. Daniels Gayl W. Doster and W. Leigh Thompson

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STOCK PRICE PERFORMANCE GRAPHStock Price Performance Graph
The following line graph below compares yearly percentage change in the cumulative total share stockholder return on BASi’s common shares against the cumulative total return on the NASDAQ Composite Index and a composite index based on a group of tennine publicly traded contract research and chemical instrumentation organizations (the “Peer Group Index”) for the period commencing September 30, 19982001 and ending September 30, 2004.2006.

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The Peer Group Index is comprised of: AAIpharma, Inc.; Covalent Group, Inc.; Kendle International, Inc.; New Brunswick Scientific Co., Inc.; Molecular Devices; Pharmaceutical Product Development, Inc.; OI Corp.; Covance, Inc.; Gene Logic, Inc.; and Bio-Rad, Inc.

The comparison of total return on investment (change in year-end stock price plus reinvested dividends) for the applicable period assumes that $100 was invested on September 30, 19982000 in each of BASi, the NASDAQ Composite Index and the Peer Group Index.

COMPARISONCOMPARISON OF CUMULATIVE TOTAL RETURN 5-YEAR CUMULATIVE TOTAL RETURN
AMONG BIOANALYTICAL SYSTEMS, INC.AMONG BIOANALYTICAL SYSTEMS, INC., THE NASDAQ NASDAQ
COMPOSITE INDEXCOMPOSITE INDEX AND THE PEER GROUP INDEXA PEER GROUP

			1999			2000			2001			2002			2003			2004
Bioanalytical Systems, Inc.				100			88			191			101			140			179
Nasdaq Composite Index				100			134			55			43			65			69
Peer Index				100			163			158			127			149			171

* $100 invested on September 30, 2001 in stock or index-including reinvestment of dividends. Fiscal year ending September 30.

				2001			2002			2003			2004			2005			2006
Bioanalytical Systems, Inc.				100	.00		52	.91		73	.65		94	.01		92	.98		90	.07
Nasdaq Composite Index				100	.00		80	.97		120	.85		131	.16		150	.08		159	.80
Peer Index				100	.00		79	.76		92	.15		140	.13		192	.60		244	.80

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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESection 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the BASi directors and executive officers and persons who beneficially own more than ten percent of a registered class of the BASi equity securitiesBASi’s Common Shares to file with the SEC initial Securities and Exchange Commission (”SEC”)reports showing ownership of ownership and reports of changes in ownership of common sharesBASi Common Shares and other equity securitiessecurities. On the basis of BASi. Officers, directors and greater-than-ten-percent shareholders are required by SEC regulation to furnish BASi with copies of all Section 16(a) reports they file. Except as set forth below and based solely upon the review of Section 16(a) reports furnished to BASi during or with respect to fiscal 2004 and written representationsinformation submitted by the BASi officers, directors and greater-than-ten-percent beneficial ownersexecutive officers, BASi believes that no other reports wereits directors and executive officers timely filed all required BASi is not aware of any instance of noncompliance or late compliance with Section 16(a) during orfilings for fiscal 2006 and (except as disclosed in prior years’ proxy statements) for prior years, except for the inadvertent failure of Mr. Baitinger to timely file one Form 4 report for three transactions.

Communications with respect to fiscal 2004.

Mr. Silvon was late in filing a Form 3.

COMMUNICATIONS WITH THE BOARD OF DIRECTORSthe Board of Directors
Currently, BASi shareholders may send communications for the Board of Directors directly to Peter T. Kissinger, Chairman of the Board of Directors, under the “Ask Pete” portion of the BASi website found atwww.bioanalytical.com. The Board of Directors is also in the process of implementing a www.bioanalytical.com. Any shareholder communication policy in orderwho desires to better facilitate communications between shareholders and allcontact members of the Board of Directors.Directors, including non-management members as a group, may do so by writing to:

Corporate Secretary, Bioanalytical Systems, Inc.
2701 Kent Avenue
West Lafayette, IN 47906
corporatesecretary@bioanalytical.com

The corporate secretary will collect all such communications and organize them by subject matter. Thereafter, each communication will be promptly forwarded to the appropriate board committee chairperson according to the subject matter of the communication. Communications addressed to the non-management members as a group will be forwarded to each non-management member of the board.

SELECTION OF INDEPENDENT ACCOUNTANTSContacting the Audit Committee
On July 14, 2004,Any person who would like to contact BASi for the purpose of submitting a complaint regarding accounting, internal accounting controls, or auditing matters may do so by writing to:

Chairman of the Audit Committee, William E. Baitinger
700 Sugarhill Drive
West Lafayette, IN 47906
(765) 743-1023
auditcommittee@bioanalytical.com

Upon receipt of a complaint, the Chairman of the Audit Committee will follow a review process and actions dictated in the Company’s Code of Business Conduct and Ethics.

SELECTION OF INDEPENDENT ACCOUNTANTS
The BASi Audit Committee of the Board of Directors approved the dismissal of the Company’sengaged Crowe Chizek and Company LLC (“Crowe”) as BASi’s independent public accountants Ernst & Young LLP (“E&Y”) and the engagement of KPMG LLP (“KPMG’) for the audit of financial statements for the year ending September 30, 2004.2006. As previously reported by BASi on a Form 8-K filed with the SEC on September 14, 2006, BASi’s prior independent accountants, KPMG LLC (”KPMG”) resigned effective September 14, 2006. As reported on a Form 8-K filed with the SEC on November 1, 2006, the Audit Committee engaged Crowe on October 30, 2006.

The reports of E&YKPMG for the past two fiscal years ended September 30, 20032005 and 20022004, contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with its audits for the two most recent fiscal years ended September 30, 20032005 and 2002,2004 and through July 14, 2004,September 15, 2006, there have beenwere no disagreements with E&YKPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of E&Y,KPMG, would have caused them to make reference to the subject matter of the disagreement in connection with their report on the financial statements for such period.

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During the two most recent fiscal years ended September 30, 20032006 and 2002, and through July 14, 2004,2005, there have beenwere no reportable events (as defined in Regulation S-K, Item 304(a)(1)(v)), except for a material weakness in the Company’sBASi’s internal control for the year ended Septemberat June 30, 20032006 which was identified by E&YKPMG and disclosed in Item 9A9 in the Company’sBASi Annual Report on Form 10-K for the year ended September 30, 2003. Specifically, the independent registered public accountants2006. KPMG noted that the Company’scertain conditions involving BASi’s internal control failedand its operation that KPMG considered to timely alert managementbe “material weaknesses.” “Material weakness” was defined in a letter from KPMG to BASi as “a control deficiency, or combination of potential loan covenant noncompliance.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 Company did notmaterial 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 operating environment that could have a material effect on financial reporting; failure to maintain adequately trained personnel to perform effective review of accounting procedures in placecritical to monitor near-term future financial positionreporting; and resultsa lack of operations to enable it to take operational action in the event of potential loan covenant noncompliance. The Company has taken measures to correct this material weakness in the form of enhancing its planning processadequately trained finance and creating procedures to more timely identify credit agreement compliance issues. E&Y discussed this issueaccounting 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 Impairment or Disposal of Long-Lived Assets. Management concurred with the assessment of KPMG. KPMG discussed the matters described in this paragraph with the BASi Audit Committee of the Board of Directors, and has beenCommittee. BASi authorized by the CompanyKPMG to respond fully to the inquiries of KPMG.its successor accountant concerning these matters.

E&Y has furnished the Company with a letter addressedKPMG also communicated to the SecuritiesAudit Committee in the above-referenced letter that BASi had filed its Report on Form 10-Q for the three- and Exchange Commission (the “Commission”) stating that they agree with the above statements. A copy of the E&Y letter dated August 5, 2004 was filed as Exhibit 16.1nine-month periods ended June 30, 2006, prior to the Company’s Amendment No. 1completion of its interim review. KPMG subsequently completed its interim review and BASi filed an amended report on Form 10-Q/A for the three- and nine-month periods ended June 30, 2006.

BASi engaged Crowe as its principal independent accountants effective as of October 30, 2006. At no time prior to Form 8-K dated July 14, 2004.

Prior to the engagement of KPMG, management ofOctober 30, 2006 had BASi had not consulted with KPMGCrowe regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the BASi financial statements; or (ii) any matters. matter that was either the subject of a disagreement (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to that Item) or a reportable event (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).

Representatives of KPMGCrowe are expected to be present at the Annual Meeting. They will have the opportunity to make a statement if they desire to do so and will be available to respond toanswer appropriate questions concerning the audit of BASi’s financial statements.

AUDIT FEES

2004

2003

Aggregate fees for annual audit, quarterly reviews(1)

$202,462

$316,015

TAX FEES

2004

2003

Income tax services related to compliance with tax laws

$108,298

$  64,920

(1)	Audit fees paid in fiscal 2004 include $51,000 paid to KPMG for the third quarter review and work on fiscal 2004 audit; all other tax and audit fees presented were paid to Ernst & Young.

Audit Fees			2006			2005
Aggregate fees for annual audit, quarterly reviews			$350,000			$365,000
Tax Fees			2006			2005
Income tax services related to compliance with tax laws			$100,000			$ 60,000

BASi’sBASi policies require that the scope and cost of all work to be performed for BASi by its independent registered public accountants must be approved by the Audit Committee. Prior to the commencement of any work by the independent registered public accountants on behalf of BASi, the independent registered public accountants provide an engagement letter describing the scope of the work to be performed and an estimate of the fees. The Audit Committee and the Chief Financial Officer must review and approve the engagement letter and the estimate before authorizing the engagement. Where fees charged by the independent registered public accountants exceed the estimate, the Audit Committee must review and approve the excess fees prior to their payment.

2.        APPROVAL OF AMENDMENT TO THE 1997 EMPLOYEE INCENTIVE STOCK OPTION PLAN

On October 23, 1997, the Board of Directors of BASi adopted the Employee Incentive Stock Option Plan (the “Employee Option Plan”), which was subsequently approved by the shareholders of BASi prior to the initial public offering. In 2003, the shareholders of BASi approved an amendment to the Employee Option Plan increasing the number of BASi common shares available for grant under the Employee Option Plan to a total of 395,000. On January 14, 2005, the BASi Board of Directors approved an amendment to the Employee Option Plan, described below in further detail, to amend the Employee Option Plan to increase the number of BASi common shares available for grant under the Employee Option Plan by 250,000 shares (for a total of 645,000 shares available for grant), subject to approval by the shareholders of BASi.

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The principal features of the Employee Option Plan, including an explanation of the material change contemplated by the proposed amendment, are described below, but such description is qualified entirely by reference to the text of the Employee Option Plan, a copy of which is attached to this Proxy Statement as Appendix A. Except as otherwise described below in the explanation of the proposed amendment, all other existing provisions of the Employee Option Plan are not changed.

PROPOSED PLAN AMENDMENT; INCREASE IN AUTHORIZED SHARES
As of December 31, 2004, no common shares remained available for additional option grants under the Employee Option Plan. The Board of Directors amended the Employee Option Plan, subject to shareholder approval, to increase the number of shares available for issuance under the Employee Option Plan. Because of historic grant patterns and expansion plans for the Company, the Board of Directors believe the number of shares presently available for grant and those which may become available in the future will not give BASi sufficient flexibility to structure future incentives. Therefore, if shareholders approve the proposed amendment, an additional 250,000 shares would become available for grants under the Employee Option Plan.

SUMMARY OF THE EMPLOYEE OPTION PLAN
General.    The purpose of the Employee Option Plan is to further the growth, development and financial success of BASi by providing additional incentives to certain eligible employees and permitting those persons to benefit directly from the growth, development and financial success of BASi.

Administration.    The Employee Option Plan is administered by an Incentive Stock Option Committee consisting of three (3) or more members of the Board of Directors of BASi (the “Employee Committee”). The Employee Committee has the authority to interpret and construe the provisions of the Employee Option Plan or any option granted under it, determine exercise periods, and prescribe, amend and rescind rules and regulations with regard to the Employee Option Plan.

Eligibility.    Options under the Employee Option Plan may be granted only to those persons who are employees of BASi and who are eligible to participate. Eligibility shall be determined by the Employee Committee from time to time; provided that no option shall be granted to any employee of BASi who, at the time such option is granted, owns shares (together with such person’s brothers, sisters, spouse, ancestors and lineal descendants) possessing more than ten percent (10%) of the total combined voting power of all classes of shares of BASi or any parent or subsidiary of BASi (a “10% Shareholder”). The percentage limitations do not apply if at the time such option is granted the option price is at least one hundred ten percent (110%) of the fair market value of the shares subject to the option and such option is not exercisable after the expiration of five (5) years from the date such option is granted.

Maximum Number of Shares.    As amended by the Board of Directors of BASi, subject to approval by the shareholders of BASi, the aggregate number of shares for which options may be granted under the Employee Option Plan is 645,000, subject to adjustments for recapitalizations. Any shares subject to an option that expires or is terminated shall again become available for grant. Prior to the amendment by the Board of Directors of BASi, the aggregate number of shares for which options could be granted under the Employee Option Plan was 395,000, subject to adjustments for recapitalizations.

Maximum Exercise Rule.    The Employee Option Plan limits the aggregate fair market value (determined at the time the option is granted) of the shares with respect to which incentive stock options are exercisable for the first time during any calendar year to $100,000.

Exercise Price.    Any grant of options under the Employee Option Plan shall have an exercise price of not less than the fair market value per share of the shares on the date of granting of the option. The exercise price of an option granted under the Employee Option Plan may be paid (i) in cash, (ii) by certified check or bank cashier’s check, (iii) through the tender to BASi of shares of BASi or through the withholding of shares of BASi that are subject to the option, or (iv) by a combination of the foregoing; provided that the Employee Committee may impose limitations on the use of shares to exercise options. Any grant of options under the Employee Option Plan to a 10% Shareholder must be in an amount per share not less than one hundred ten percent (110%) of the fair market value per share of the shares on the date of the granting of the option.

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Term of Options and Time of Exercise.    No term of any option granted under the Employee Option Plan shall be in excess of ten (10) years; provided, however, if the person to whom the option is granted is a 10% Shareholder, the term shall not be longer than five (5) years.

Termination of Employment.    Upon cessation of employment with BASi or certain entities affiliated with BASi, all options granted under the Employee Option Plan held by such employee shall terminate as to any unexercised portion thereof; provided, however, that if the cessation of employment is due to retirement with the consent of BASi such employee may exercise any such options within three (3) months after such cessation and if the cessation of employment is due to permanent or total disability or death such employee or such employee’s personal representative, as the case may be, may exercise any such options within 12 months after such cessation of employment.

Merger, Dissolution or Liquidation.    Upon merger or consolidation, BASi may terminate any option outstanding on 30 days written notice. Upon dissolution or liquidation of BASi, BASi shall provide 30 days written notice to all holders of options and each unexercised option shall terminate upon dissolution or liquidation.

Assignability.    Options may not be assigned or transferred, except by will or by the laws of descent and distribution, and during an optionee’s lifetime may be exercised only by the optionee.

Term of the Employee Option Plan.    The Employee Option Plan may be terminated by the Board of Directors of BASi at any time with respect to shares as to which options have not been granted. No options may be granted under the plan after its termination.

Amendment.    The Board of Directors of BASi may amend, suspend or discontinue the Employee Option Plan with respect to any shares as to which options have not been granted. The approval of the holders of a majority of the outstanding shares of each class of voting shares of BASi is required for any amendment to the Employee Option Plan relating to (i) an increase in the number of shares for which options may be granted, (ii) a change in the class of shares for which options may be granted, and (iii) a change in the manner in which the option price is determined.

Withholdings.    The Employee Committee has the right to require persons receiving options to remit to BASi amounts sufficient to satisfy any federal, state or local income tax withholding requirements.

FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of an employee’s participation in the Employee Option Plan are complex and subject to change. The following discussion is only a summary of the general rules applicable to stock options granted under the Employee Option Plan as of the date hereof. The application of state and local income taxes and other federal taxes is not discussed. For individuals resident outside the United States, the tax consequences to the individual and to BASi are determined by the applicable tax laws of the foreign jurisdiction.

The grant of an incentive stock option under the Employee Option Plan generally will have no federal income tax consequences for BASi or the optionee. Except for alternative minimum tax purposes, the exercise of an incentive stock option pursuant to the Employee Option Plan will have no federal income tax consequences to BASi or the optionee. An optionee generally will recognize capital gain or loss upon the sale of shares acquired in exercising an incentive stock option, provided that the shares are sold at least two years after the date of grant of the option and at least one year after the optionee acquires the shares. An optionee generally will recognize ordinary income upon the sale of shares acquired in exercising an incentive stock option if the sale is made within two years of the date the option was granted or within one year of the date the shares were transferred to the optionee. In such event, the amount of ordinary income recognized by the optionee generally will equal the difference between the option price and the fair market value of the shares on the date of exercise. BASi may take an income tax deduction for compensation conveyed by an incentive stock option only in situations (and the taxable year) in which the employee must recognize ordinary income.

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Furthermore, if the compensation attributable to awards is not “performance-based” within the meaning of Section 162(m) of the Internal Revenue Code, BASi may not be permitted to deduct the aggregate non performance-based compensation in excess of $1,000,000 in certain circumstances.

NEW PLAN BENEFITS
BASi currently anticipates that it will, as a general matter, grant options on an annual basis. However, future option grant recipients, and future option grant levels, have not been determined. Therefore, the number, amount and type of awards to be received by or allocated to eligible persons in the future under the Employee Option Plan cannot be determined at this time. BASi has not approved any awards under the Employee Option Plan that are conditioned upon shareholder approval of the proposed plan amendment. On January 10, 2005 the closing price of a common share of BASi was $5.10.

VOTE REQUIRED
The approval of the amendment to the Employee Option Plan requires the affirmative vote of the holders of a majority of the outstanding common shares.2.  OTHER MATTERS

The Board of Directors of BASi recommends a vote FOR the approval of the amendment to the Employee Option Plan.

3.        APPROVAL OF AMENDMENT TO THE 1997 OUTSIDE DIRECTOR STOCK OPTION PLAN

On October 23, 1997, the Board of Directors of BASi adopted the 1997 Outside Director Stock Option Plan (“Director Option Plan”). In 2003, the shareholders of BASi approved an amendment to the Director Option Plan increasing the number of BASi common shares available for grant under the Director Option Plan to a total of 30,000. On January 14, 2005, the BASi Board of Directors approved an amendment to the Director Option Plan, described below in further detail, to amend the Director Option Plan to increase the number of BASi common shares available for grant under the Director Option Plan by 25,000 shares (for a total of 55,000 shares available for grant), subject to approval by the shareholders of BASi.

The principal features of the Director Option Plan, as amended, are described below, but such description is qualified entirely by reference to the text of the Director Option Plan, a copy of which is attached to this Proxy Statement as Appendix B.

PROPOSED PLAN AMENDMENT; INCREASE IN AUTHORIZED SHARES
As of December 31, 2004, no common shares remained available for additional option grants under the Director Option Plan. The Board of Directors amended the Director Option Plan, subject to shareholder approval, to increase the number of shares available for issuance under the Director Option Plan. Because of historic grant patterns and expansion plans for the Company, the Board of Directors believe the number of shares presently available for grant and those which may become available in the future will not give BASi sufficient flexibility to structure future incentives. Therefore, if shareholders approve the proposed amendment, an additional 30,000 shares would become available for grants under the Director Option Plan.

SUMMARY OF THE DIRECTOR OPTION PLAN
Purpose.    The purpose of the Director Option Plan is to be an incentive to, and to encourage ownership of the shares of BASi by, outside directors in order to provide such outside directors with a direct and proprietary interest in the welfare and success of BASi and to encourage continuity on the Board of Directors.

Administration.    The Director Option Plan is administered by the Director Option Committee consisting of three (3) or more members of the Board of Directors of BASi (the “Director Committee”). The Director Committee has authority to interpret and construe the provisions of the Director Option Plan or any option granted under it, to select outside directors to whom grants of options shall be made, to prescribe, amend and rescind rules and regulations relative to the Director Option Plan, to determine the terms and conditions of each option granted and to make any other determinations regarding the Director Option Plan not addressed therein.

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Eligibility.    Options under the Director Option Plan may be granted only to persons who are outside directors of BASi. Eligibility shall be determined by the Director Committee from time to time.

Maximum Number of Shares.    As amended by the Board of Directors of BASi, the aggregate number of shares for which options may be granted under the Director Option Plan is 30,000, subject to adjustments for recapitalizations. Any shares subject to an option that expires or is terminated shall again become available for grant. Prior to the amendment by the Board of Directors of BASi, the aggregate number of shares for which options could be granted under the Director Option Plan was 5,000, subject to adjustments for recapitalizations.

Exercise Price.    Any grant of options under the Director Option Plan shall have an exercise price of not less than the fair market value per share of the shares on the date of granting of the option. The exercise price of an option granted under the Director Option Plan may be paid (i) in cash, (ii) by certified check or bank cashier’s check, (iii) through the tender to BASi of shares of BASi or through the withholding of shares of BASi that are subject to the option, or (iv) by a combination of the foregoing; provided that the Director Committee may impose limitations on the use of shares to exercise options.

Term of Options and Time of Exercise.    No term of any option granted under the Director Option Plan shall be in excess of ten (10) years. Each option granted under the Director Option Plan shall be exercisable in four (4) equal installments. The option may be exercised as to the shares covered by the first installment from and after the second anniversary of the grant of the option, with second, third and fourth installments becoming exercisable on the three (3) succeeding anniversary dates; provided that any such limitation on the exercise of an option may be rescinded, modified or waived by the Director Committee.

Termination of Service as a Director.    In the event an individual ceases to serve as a director of BASi or of any one of certain entities affiliated with BASi, all options granted under the Director Option Plan held by such individual shall terminate as to any unexercised portion thereof; provided that if the cessation of service is due to retirement with the consent of BASi such individual may exercise any such options within three (3) months after such cessation and if the cessation of service is due to permanent or total disability or death such individual or such individual’s personal representative, as the case may be, may exercise any such options within 12 months after such cessation of service.

Adjustments upon Merger or Dissolution.    Upon merger or consolidation, BASi may terminate any option outstanding on 30 days written notice. Upon dissolution or liquidation of BASi, BASi shall provide 30 days written notice to all holders of options and each unexercised option shall terminate upon dissolution or liquidation.

Assignability.    Options may not be assigned or transferred except by will or by the laws of descent and distribution and during an optionee’s lifetime may be exercised only by the optionee.

Term of the Director Option Plan.    Options may be granted under the Director Option Plan until the ten (10) year anniversary of the adoption of the Director Option Plan.

Amendment.    The Board of Directors of BASi may amend, suspend or discontinue the Director Option Plan with respect to any shares as to which options have not been granted. The approval of the holders of the options under the Director Option Plan is required for any amendment to the Director Option Plan that would alter any of the rights or obligations of BASi or any holder of options with respect to the outstanding option.

Withholdings.    The Director Committee has the right to require persons receiving options to remit to BASi amounts sufficient to satisfy any federal, state or local income tax withholding requirements.

15

FEDERAL INCOME TAX CONSEQUENCES
The holder of an option will not be subject to tax at the time a nonqualified option is granted; however, a director who exercises a nonqualified option must include in income as of the date of exercise the difference between (i) the amount paid for the shares upon exercise of the option and (ii) the fair market value of the shares. The recognized income may be subject to withholding for federal, state and local income and other payroll taxes. The optionee’s federal income tax cost basis for the shares will be the amount paid for the shares plus the income recognized. If an optionee uses shares in full or partial payment of the exercise price of a nonqualified option, the exchange should not affect the federal income tax treatment of the exercise. The optionee will realize no gain or loss with respect to the shares so used. The net additional shares received upon such exercise by the optionee will have a federal income tax cost basis equal to the ordinary income recognized as a result of the option exercise (plus the amount of any cash used in the option exercise) and a holding period commencing upon the date such income is recognized. Subsequent sale of such shares will result in a capital gain or loss equal to the difference between the optionee’s federal income tax cost basis for the shares and the sale price.

BASi will be entitled to a federal income tax deduction in the amount of the ordinary income recognized by the optionee as of the date the optionee recognizes ordinary income.

NEW PLAN BENEFITS
The following table sets forth certain information regarding the benefits expected to be received by persons in each indicated group under the Director Option Plan, as amended. The 30,000 shares previously authorized by the Director Option Plan were available for grants only to non-executive directors of BASi. As of December 31, 2004, options to purchase 28,000 of such shares had been granted, and 2,000 remained available for grant. On January 10, 2005 the closing price of a common share of BASi was $5.10.

NEW PLAN BENEFITS:  1997 BIOANALYTICAL SYSTEMS, INC.
OUTSIDE DIRECTOR STOCK OPTION PLAN

NAME AND POSITION	DOLLAR VALUE ($)	NUMBER OF UNITS
CEO	0	0
Executive Group	0	0
Non-Executive Director Group	0	25,000
Non-Executive Officer Employee Group	0	0

VOTE REQUIRED
The approval of the Director Option Plan requires that the votes cast for approval of the Director Option Plan by the shareholders of BASi exceed those cast against approval of the Director Option Plan by the shareholders of BASi.

The Board of Directors of BASi recommends a vote FOR the approval of the Director Option Plan.

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4.        OTHER MATTERS

As of the date of this proxy statement, the Board of Directors of BASi has no knowledge of any matters to be presented for consideration at the Annual Meeting other than those referred to above. If (a) any matters not within the knowledge of the Board of Directors as of the date of this proxy statement should properly come before the meeting; (b) a person not named herein is nominated at the meeting for election as a director because a nominee named herein is unable to serve or for good cause will not serve; (c) any proposals properly omitted from this proxy statement and the form of proxy should come before the meeting; or (d) any matters should arise incident to the conduct of the meeting, then the proxies will be voted in accordance with the recommendations of the Board of Directors of BASi.

By Order of the Board of Directors, Candice B. Kissinger Secretary January 17, 2005 2007

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APPENDIXSIDE A

BIOANALYTICAL SYSTEMS, INC.
1997 EMPLOYEE INCENTIVE STOCK OPTION PLAN
(AS AMENDED JANUARY 14, 2005)

1.        REVOCABLE PROXY

Purpose.Bioanalytical Systems, Inc.    This 1997 Employee Incentive Stock Option Plan (hereinafter referred

Annual Meeting of Shareholders to as the “Plan”) is intended to be an incentive to, and to encourage share ownership by, key employeesBe Held Thursday, February 15, 2007

The undersigned shareholder of Bioanalytical Systems, Inc. (“BASi”) hereby appoints Peter T. Kissinger, Lina Reeves-Kerner, and its subsidiaries (hereinafter collectively referredeach of them as proxy for the undersigned, to asvote all shares of BASi which the “Employer”undersigned is entitled to vote at the Annual Meeting of Shareholders (the “Meeting”) of BASi to be held on Thursday, February 15, 2007, at 10:00 a.m., at the principal executive offices of BASi, 2701 Kent Avenue, West Lafayette, Indiana, or any adjournment thereof, in connection with all votes taken on the following proposal, described in the Proxy Statement received by the undersigned with the Notice of the Meeting.

1.	Proposal 1 – Approval of the election of the following individuals to the Board of Directors of BASi: William E. Baitinger, David W. Crabb, Leslie B. Daniels, Candice B. Kissinger and Peter T. Kissinger.
	For
	Any shareholder may withhold authority to vote for any of the above-listed individuals by striking out the name of such individual.

Proxy must be signed and dated. See reverse side.

SIDE B

PRESENTLY NO OTHER BUSINESS IS SCHEDULED TO BE PRESENTED AT THE MEETING. HOWEVER, BY SIGNING THIS PROXY YOU ARE GIVING THE HOLDER OF THIS PROXY DISCRETIONARY AUTHORITY TO ACT IN ACCORDANCE WITH THE DIRECTION OF THE BOARD OF DIRECTORS ON SUCH MATTERS.

This Proxy, when properly executed, will be voted in the manner contemplateddirected herein by Section 422the undersigned shareholder. If no direction is made, this Proxy will be voted FOR Proposal 1 with respect to all votes taken on such proposal.

All Proxies previously given by the undersigned are hereby revoked. Receipt of the Internal Revenue CodeNotice of 1986, as amended (“Code”), in order to provide such employees with a more direct and proprietary interest in the welfare and successMeeting of the Employer and to insure their continuation as employees of the Employer.

2.        Administration.    The Plan shall be administered by an Incentive Stock Option Committee (hereinafter referred to as the “Committee”) consisting of three (3) or more members of the Board of Directors of Bioanalytical Systems, Inc. (the “Company”) who are appointed from time to time by the Board of Directors of the Company. The Board of DirectorsShareholders of the Company, the Proxy Statement, and the Company’s 2006 Annual Report is hereby acknowledged.

This Revocable Proxy may frombe revoked by the undersigned at any time to time remove members from, or add membersbefore it is exercised by (i) executing and delivering to the Committee. Vacancies onCompany a later-dated Proxy, (ii) attending the Committee, howsoever caused, shall be filled by the Board of Directors of the Company. The Committee shall have the power to interpretMeeting and construe the provisions of the Plan or any option granted under it, and such interpretation or construction shall be final and binding. The Committee may prescribe, amend and rescind rules and regulations relative to the Plan or its construction or interpretation. A majority of the Committee shall constitute a quorum. All determinations of the Committee shall be made by not less than a majority of its members. No member of the Committee shall be liable for any action or determination made in good faith.

3.        Eligibility.    Only those persons who are employees of the Employer shall be eligible to participate in the Plan. The Committee shall determine from time to time the particular employees of the Employer who shall be eligible to participate in the Plan and the extent of their participation therein. No option shall be granted under the Plan to any employee of the Employer who, at the time such option is granted, owns shares possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or of any parent or subsidiary corporation of the Company or any parent or subsidiary corporation of any of the foregoing (such employee being hereinafter referred to as a “10% Shareholder”), except as provided below. In determining whether the percentage limitations of this paragraph are met, an employee shall be considered as owning any shares owned, directly or indirectly, by or for his brothers or sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants. For purposes of this paragraph 3, shares owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. The percentage limitations of this paragraph 3 shall not apply, however, if at the time such option is granted the option price is at least one hundred ten percent (110%) of the fair market value of the shares subject to the option and such option by its terms is not exercisable after the expiration of five (5)years from the date such option is granted.

4.        Shares.    The shares subject to the options and other provisions of the Plan shall be shares of the Company’s authorized, but unissued, or reacquired Common Shares (the “Common Shares”). The total amount of the Common Shares on which options may be granted shall not exceed in the aggregate Six Hundred Forty-Five Thousand (645,000) shares, except as such number of shares shall be adjusted in accordance with the provisions set forth in paragraph 6(g) hereof. In the event any outstanding option under the Plan expires or is terminated for any reason prior to the end of the period during which options may be granted, the Common Shares allocable to the unexercised portion of such option may again be subject to an option under the Plan. During the period that any options granted hereunder are outstanding, the Employer shall reserve and keep available such number of Common Shares as will be sufficient to satisfy all outstanding, unexercised options.

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