We have a note payable to Regions Bank (“Regions”) that is secured by mortgages on our facilities in West Lafayette and Evansville, Indiana. We also have a line of credit with Entrepreneur Growth Capital LLC ("EGC" and together with Regions, the "Lenders"). Borrowings under the EGC credit agreement are secured by a blanket lien on our personal property, including certain eligible accounts receivable, inventory, and intellectual property assets, a second mortgage on our West Lafayette and Evansville, Indiana real estate, and all common stock of our U.S. subsidiaries and 65% of the common stock of our non-United States subsidiary. The Regions loans contain cross-default provisions with each other and with the revolving line of credit with EGC. The EGC credit agreement also contains cross-default provisions with the Regions loans and any future EGC loans.

The agreements governing the Regions and EGC indebtedness include certain financial covenants with which we must comply each quarter, including a fixed charge coverage and a tangible net worth covenant. A breach of any of these covenants or our inability to comply with any required financial ratios could result in a default under one or more credit agreements, unless we are able to obtain the necessary waivers or amendments to the credit agreements. Upon the occurrence of an event of default that is not waived, and subject to any appropriate cure periods, the lenders under the affected credit agreements could elect to exercise any of their available remedies, which may include the right to not lend any additional amounts to us or, in certain instances, to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable. If we are unable to repay the borrowings with respect to such credit facility when due, the lenders would be permitted to proceed against their collateral. In addition, EGC could refuse to make further advances to us under our line of credit. If the Lenders take any or all of these steps, our operating results and financial condition will be materially adversely affected and we may be unable to continue to fund our operations.

The Regions loans originally matured on October 31, 2013. We secured an extension of that maturity date to October 31, 2014. All amounts due under this credit facility are due and payable on the maturity date. We are pursuing alternatives to refinance the Regions indebtedness, including borrowing from another lending institution and a sale and leaseback of our West Lafayette, Indiana building. In the event we are unable to refinance or further extend the maturity of our Regions indebtedness, Regions would be entitled to exercise remedies against us, including its right to foreclose or otherwise enforce the mortgage liens and security interests in our assets. If Regions takes any or all of these steps, our operating results and financial condition will be materially adversely affected and we may be unable to continue to fund our operations.

On October 31, 2013, we notified EGC of our intention not to renew the line of credit which expires on January 31, 2014. We are pursuing alternatives with other banks for a new revolving line of credit. In the event we are unable to replace the EGC line of credit with another line of credit prior to January 31, 2014, we will be required to rely on cash from operating activities to fund our continued operations. In that event, if our operations do not generate sufficient cash flow to enable us to pay our expenses when they come due, we may be unable to continue to fund our operations.

We have experienced periods of losses on our operating activities.

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

If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, the accuracy and timeliness of our financial reporting may be adversely affected.

Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial statements. Moreover, we must maintain effective disclosure controls and procedures in order to provide reasonable assurance that the information required to be reported in our periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As a result of the issues that led to the restatement of our consolidated financial statements in Form 10-K/A for the year ended September 30, 2012 as discussed in Note 3 to the consolidated financial statements, our Chief Executive Officer and Chief Financial Officer reassessed the effectiveness of our internal control over financial reporting and our disclosure controls and procedures as of September 30, 2012 as described in Item 9A of this report and have concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of September 30, 2012. The internal control deficiency resulted in the misstatement of our financial statements and financial disclosures for the years ended September 30, 2011 and 2012 and the quarters ended June 30 and December 31, 2011, March 31, June 30, and December 31, 2012, and March 31, 2013. If we are unable to effectively remediate this material weakness or we are otherwise unable to maintain effective internal controls over financial reporting or disclosure controls and procedures, it could result in another material misstatement of our consolidated financial statements that would require a restatement, investor confidence in the accuracy and timeliness of our financial reports may be adversely impacted, and the market price of our common shares could be negatively impacted.

We rely on a limited number of key customers, the importance of which may vary dramatically from year to year, and a loss of one or more of these key customers may adversely affect our operating results.

Two customers accounted for approximately 10.7% of our total revenue in fiscal 2012 and three customers accounted for approximately 15.3% of our total revenues in fiscal 2013. Our agreement with one of those large customers that required the customer to use us as their preferred provider for toxicology services expired on July 29, 2012. Although the parties continue to operate under substantially the same economic terms and conditions as are set forth in the preferred provider agreement, neither we nor our customer are obliged to do so. The loss of a significant amount of business from one of our major customers would materially and adversely affect our results of operations until such time, if ever, as we are able to replace the lost business. Significant clients in any one period may not continue to be significant clients in other periods. In any given year, there is a possibility that a single pharmaceutical company may account for 5% or more of our total revenue. Since we do not have long-term contracts with most of our clients, the importance of a single client may vary dramatically from year to year. To the extent that we are dependent on any single customer, we are subject to the risks faced by that customer to the extent that such risks impede the customer's ability to stay in business and make timely payments to us.

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

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

The loss, reduction in scope or delay of a large contract or the loss or delay of multiple contracts could materially adversely affect our business, although our contracts frequently entitle us to receive the costs of winding down the terminated projects, as well as all fees earned by us up to the time of termination. Some contracts also entitle us to a termination fee.

We may bear financial risk if we underprice our contracts or overrun cost estimates.

Since some of our contracts are structured as fixed price or fee-for-service, we bear the financial risk if we initially underprice our contracts or otherwise overrun our cost estimates. Such underpricing or significant cost overruns could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

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

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

Our future success dependsWe rely on a limited number of key customers, the importance of which may vary dramatically from year to year, and a loss of one or more of these key customers may adversely affect our operating results.

Five customers accounted for approximately 30% of our total revenue in fiscal 2015 and approximately 31.7% of our total revenues in fiscal 2014. The loss of a significant amount of business from one of our major customers would materially and adversely affect our results of operations until such time, if ever, as we are able to replace the lost business. Significant customers or projects in any one period may not continue to be significant customers or projects in other periods. In any given year, there is a possibility that a single pharmaceutical company may account for a significant percentage of our total revenue or that our business may be dependent on one or more large projects. Since we do not have long-term contracts with most of our customers, the importance of a single customer may vary dramatically from year to year as projects end and new projects begin. To the extent that we are dependent on any single customer, we are subject to the risks faced by that customer to the extent that such risks impede the customer's ability to keep pace with rapid technological changes that couldstay in business and make our services and products less competitive or obsolete.timely payments to us.

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

Hardware or software failures, delays in the operationsMost of our computer and communications systemscontracts for CRO services are terminable by the customer upon 30 days’ notice. Customers terminate or delay their contracts for a variety of reasons, including but not limited to:

The loss, reduction in scope or delay of a large contract or the failure to implement system enhancementsloss or delay of multiple contracts could harm our business.

Our success depends on the efficient and uninterrupted operation of our computer and communications systems. A failure of our network or data gathering procedures could impede the processing of data, delivery of databases and services, client orders and day-to-day management of our business and could result in the corruption or loss of data. While all of our operations have disaster recovery plans in place, they might not adequately protect us. Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our computer facilities could result in interruptions in the flow of data to our servers and from our servers to our clients. In addition, any failure by our computer environment to provide our required data communications capacity could result in interruptions in our service. In the event of a delay in the delivery of data, we could be required to transfer our data collection operations to an alternative provider of server hosting services. Such a transfer could result in delays in our ability to deliver our products and services to our clients. Additionally, significant delays in the planned delivery of system enhancements, improvements and inadequate performance of the systems once they are completed could damage our reputation and harm our business. Finally, long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities and acts of terrorism, particularly involving cities in which we have offices, couldmaterially adversely affect our businesses. Althoughbusiness, although our contracts frequently entitle us to receive the costs of winding down the terminated projects, as well as all fees earned by us up to the time of termination. Some contracts also entitle us to a termination fee.

Changes in government regulation or in practices relating to the pharmaceutical industry could change the demand for the services we carry property and business interruption insurance, our coverage might not be adequate to compensate us for all losses that may occur.provide.

We operateGovernmental agencies throughout the world, but particularly in a highly competitive industry.

The CRO services industry is highly competitive. We often compete forthe United States, strictly regulate the drug development process. Our business not only with other, often larger and better capitalized, CRO companies, but also with internal discovery and development departments within our clients, some of which are largeinvolves helping pharmaceutical and biotechnology companies comply with greater resources thanthe regulatory drug approval process. Changes in regulation, such as a relaxation in regulatory requirements or the introduction of simplified drug approval procedures, or an increase in regulatory requirements that we have. Ifmay have difficulty satisfying, or that make our services less competitive, could substantially change the demand for our services. Also, if the government increases efforts to contain drug costs and pharmaceutical and biotechnology company profits from new drugs, our customers may spend less, or reduce their growth in spending on research and development.

We may bear financial risk if we do not compete successfully,underprice our contracts or overrun cost estimates.

Since some of our contracts are structured as fixed price or fee-for-service, we bear the financial risk if we initially underprice our contracts or otherwise overrun our cost estimates. Such underpricing or significant cost overruns could have a material adverse effect on our business, will suffer. The industry is highly fragmented, with numerous smaller specialized companiesresults of operations, financial condition, and a handful of full-service companies with global capabilities much larger than ours. Increased competition might lead to price and other forms of competition that might adversely affect our operating results. As a result of competitive pressures, our industry experienced consolidation in recent years. This trend is likely to produce more competition among the larger companies for both clients and acquisition candidates.

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

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

In particular, during fiscal 2012, we experienced substantial turnover throughout our organization due to our restructuring efforts. Our Chief Executive Officer and Vice President of Business Development and Marketing resigned and the Senior Vice Presidents of the Instruments Division and Human Resources retired during fiscal 2012. We replaced our Chief Financial Officer earlier in fiscal 2012. Also, our Vice President, Bioanalytical Services notified us of her intent to resign effective November 15, 2013. We are currently evaluating and rebuilding our organization. There is no assurance that our efforts will be successful.cash flows.

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

Any failure on our part to comply with existing regulations could result in the termination of ongoing research or the disqualification of data for submission to regulatory authorities. For example, if we were to fail to properly monitor compliance with study protocols, the data collected could be disqualified. If this were to happen, we may be contractually required to repeat a study at no further cost to the customer, but at substantial cost to us. This would harm our reputation, our prospects for future work and our operating results. Furthermore, the issuance of a notice from the FDA based on a finding of a material violation by us of good clinical practice, good laboratory practice or good manufacturing practice requirements could materially and adversely affect our business and financial performance.

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

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

We have experienced periods of losses on our operating activities.

Our overall strategy includes increasing revenue on a consistent basis and controlling our operating expenses. We have concentrated our efforts on enhancing our business development program as well as ongoing Company-wide efficiency activities intended to increase productivity and streamline our operations. We cannot assure that our efforts will result in profitability, or if our efforts result in profits, such profits will continue for any meaningful period of time.

Our failure to comply with the covenants contained in our credit facility, including as a result of events beyond our control, could result in an event of default, which could materially and adversely affect our operating results and our financial condition.  

On May 14, 2014, we entered into a Credit Agreement with Huntington Bank. The agreement includes both a term loan and a revolving loan and is secured by mortgages on our facilities in West Lafayette and Evansville, Indiana and liens on our personal property. This credit facility requires us to maintain certain financial ratios. The credit facility also requires us to comply with various operational and other covenants. If there were an event of default under our credit facility that was not cured or waived, the lenders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure that our assets or cash flow would be sufficient to fully repay borrowings under the credit facility, either upon maturity or if accelerated, upon an event of default, or that we would be able to refinance or restructure the payments becoming due on the credit facility. Please see Note 7 to the Consolidated Financial Statements for additional detail regarding our credit facility.

If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, the accuracy and timeliness of our financial reporting may be adversely affected.

Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial statements. Moreover, we must maintain effective disclosure controls and procedures in order to provide reasonable assurance that the information required to be reported in our periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. If we are unable to maintain effective internal controls over financial reporting or disclosure controls and procedures or remediate any material weakness, it could result in a material misstatement of our consolidated financial statements that would require a restatement or other materially deficient disclosures, investor confidence in the accuracy and timeliness of our financial reports and other disclosures may be adversely impacted, and the market price of our common shares could be negatively impacted.

We operate in a highly competitive industry.

The CRO services industry is highly competitive. We often compete for business not only with other, often larger and better capitalized, CRO companies, but also with internal discovery and development departments within our customers, some of which are large pharmaceutical and biotechnology companies with greater resources than we have. If we do not compete successfully, our business will suffer. The industry is highly fragmented, with numerous smaller specialized companies and a handful of full-service companies with global capabilities much larger than ours. Increased competition might lead to price and other forms of competition that might adversely affect our operating results. As a result of competitive pressures, our industry experienced consolidation in recent years. This trend is likely to produce more competition among the larger companies for both customers and acquisition candidates.

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

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

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

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

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

Providing CRO services creates a risk of liability.

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

We rely on third parties for important services.

We depend on third parties to provide us with services critical to our business. The failure of any of these third parties to adequately provide the needed services including, without limitation, transportation services, could have a material adverse effect on our business.

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

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

Hardware or software failures, delays in the operations of our computer and communications systems or the failure to implement system enhancements could harm our business.

Our success depends on the efficient and uninterrupted operation of our computer and communications systems. A failure of our network or data gathering procedures could impede the processing of data, delivery of databases and services, customer orders and day-to-day management of our business and could result in the corruption or loss of data. While we have disaster recovery plans in place for our operations, they might not adequately protect us. Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our computer facilities could result in interruptions in the flow of data to our servers and from our servers to our customers. In addition, any failure by our computer environment to provide our required data communications capacity could result in interruptions in our service. In the event of a delay in the delivery of data, we could be required to transfer our data collection operations to an alternative provider of server hosting services. Such a transfer could result in delays in our ability to deliver our products and services to our customers. Additionally, significant delays in the planned delivery of system enhancements, improvements and inadequate performance of the systems once they are completed could damage our reputation and harm our business. Finally, long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities and acts of terrorism, particularly involving cities in which we have offices, could adversely affect our businesses. Although we carry property and business interruption insurance, our coverage might not be adequate to compensate us for all losses that may occur.

Our animal populations may suffer diseases that can damage our inventory, harm our reputation, result in decreased sales of our services or research products or result in other liability to us.

It is important that our animal populations be free of diseases, including infectious diseases. The presence of diseases can distort or compromise the quality of research results, can cause loss of animals in our inventory, can result in harm to humans or outside animal populations if the disease is not contained to animals in inventory, or can result in other losses. Such results could harm our reputation or have a material adverse effect on our financial condition, results of operations, and cash flows.

Our products business depends on our intellectual property.

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

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

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

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

Providing CRO services creates a risk of liability.

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

We may expand our business through acquisitions.

We occasionally review acquisition candidates and acquisitions which we have already made.candidates. Factors which may affect our ability to grow successfully through acquisitions include:

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

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

Privacy regulations could increase our costs or limit our services.

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

We may be affected by health care reform.

In March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act (“PPACA”) intended over time to expand health insurance coverage and impose health industry cost containment measures.  PPACA legislation may significantly impact the pharmaceutical and biotechnology industries if it is fully implemented over the next several years.  In addition, the U.S. Congress, various state legislatures and European and Asian governments may consider various types of health care reform in order to control growing health care costs. We are unable to predict what legislative proposals will be adopted in the future, if any.

Implementation of health care reform legislation may have certain benefits but also may contain costs that could limit the profits that can be made from the development of new drugs. This could adversely affect research and development expenditures by pharmaceutical and biotechnology companies, which could in turn decrease the business opportunities available to us both in the United States and abroad. In addition, new laws or regulations may create a risk of liability, increase our costs or limit our service offerings.

We rely on air transportation to serve our customers.

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

We depend on the pharmaceutical and biotechnology industries.

Over the past several years, some areas of our businesses have grown significantly as a result of the increase in pharmaceutical and biotechnology companies outsourcing their preclinical and clinical research support activities. We believe that due to the significant investment in facilities and personnel required to support drug development, pharmaceutical and biotechnology companies look to outsource some or all of those services. By doing so, they can focus their resources on their core competency of drug discovery, while obtaining the outsourced services from a full-service provider like us. Our revenues depend greatly on the expenditures made by these pharmaceutical and biotechnology companies in research and development. In some instances, companies in these industries are reliant on their ability to raise capital in order to fund their research and development projects.projects and to compensate us for services rendered. Accordingly, economic factors and industry trends that affect our clientscustomers in these industries also affect our business. If companies in these industries were to reduce the number of research and development projects they conduct or outsource, our business could be materially adversely affected.

Unfavorable general economic conditions may materially adversely affect our business.

Unfavorable global economic conditions could negatively affect our business. While it is difficult for us to predict the impact of general economic conditions on our business, these conditions could reduce customer demand for some of our services, which could cause our revenue to decline. Also, our customers, particularly smaller biotechnology companies which are especially reliant on the credit and capital markets, may not be able to obtain adequate access to credit or equity funding, which could affect their ability to make timely payments to us. Moreover, we rely on credit facilities to provide working capital to support our operations. Weoperations and regularly evaluate alternative financing sources. Further changesChanges in the commercial credit market or in the financial stability of our creditors may impact the ability of our creditors to provide additional financing. In addition, the financial condition of our credit facility providers, which is beyond our control, may adversely change. Any decrease in our access to borrowings under our credit facility or successor facilities (if any), tightening of lending standards and other changes to our sources of liquidity could adversely impact our ability to obtain the financing we need to continue operating the business in our current manner. For these reasons, among others, if the economic conditions stagnate or decline, our operating results and financial condition could be adversely affected.

We rely on air transportation to serve our customers.

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

Privacy regulations could increase our costs or limit our services.

U.S. Department of Health and Human Services regulations under the Health Insurance Portability and Accountability Act of 1996 demand compliance with patient privacy and confidentiality requirements. In addition, some state governments are considering more stringent regulations. These regulations might require us to increase our investment in security or limit the services we offer. We could be found liable if we fail to meet existing or proposed regulations on privacy and security of health information.

We may be affected by health care reform.

In March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act (“PPACA”) intended over time to expand health insurance coverage and impose health industry cost containment measures.  PPACA legislation and the accompanying regulations may significantly impact the pharmaceutical and biotechnology industries as it is implemented over the next several years.  In addition, the U.S. Congress, various state legislatures and European and Asian governments may consider various types of health care reform in order to control growing health care costs. We are unable to predict what legislative proposals will be adopted in the future, if any.

Implementation of health care reform legislation may have certain benefits but also may contain costs that could limit the profits that can be made from the development of new drugs. This could adversely affect research and development expenditures by pharmaceutical and biotechnology companies, which could in turn decrease the business opportunities available to us both in the United States and abroad. In addition, new laws or regulations may create a risk of liability, increase our costs or limit our service offerings.

Risks Related to Share Ownership

Our share price could be volatile and our trading volume may fluctuate substantially.

The market price of our common shares has historically experienced and might continue to experience volatility. Many factors could have a significant impact on the future price of our common shares, including:

These factors also include ones beyond our control, such as market conditions within our industry and changes in pharmaceutical and biotechnology industries. In addition, in recent years, the stock market has experienced significant price and volume fluctuations. The stock market, and in particular the market for pharmaceutical and biotechnology company stocks, has also experienced significant decreases in value in the past. This volatility and valuation decline have affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance, and might adversely affect the price of our common stock.shares.

If we are unable to maintain listing of our securities on the NASDAQ Capital Market or any stockanother reputablestock exchange, it may be more difficult for the Company's shareholders to sell their securities.

On August 15, 2013, the Company received a letter from the NASDAQ Listing Qualification Department stating that the Company no longer compliesrequires listing issuers to comply with the listing rules for continued listing of the Company's common sharescertain standards in order to remain listed on the NASDAQ Capital Market, because the Company did not timely file its Form 10-Q for the period ended June 30, 2013 with the Securities and Exchange Commission. This letter further states that, under the listing rules, the Company has until October 14, 2013 to submit a plan to regain compliance. The Company submitted a plan by October 14, 2013 and filed the late Form 10-Q on October 18, 2013, regaining compliance.exchange. If, for any reason, NASDAQ should delist the Company's securities from trading on its exchange and the Company is unable to obtain listing on another reputable national securities exchange, a reduction in some or all of the following may occur, each of which could have a material adverse effect onmaterially adversely affect our shareholders:

There is no public market for the Series A preferred shares or warrants to purchase common shares.

There is no established public trading market for the Series A preferred shares and the warrants that were sold May 11, 2011, and we do not expect a market to develop. In addition, we have not and do not intend to apply to list the Series A preferred shares or the warrants on any securities exchange. Without an active market, the liquidity of these securities is limited.

We have never paid cash dividends and currently do not intend to do so.

We have never declared or paid cash dividends on our common shares. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.

ITEM 1B- UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2-PROPERTIES

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

•·            Our principal executive offices are located at 2701 Kent Avenue, West Lafayette, Indiana 47906, with approximately 117,000120,000 total square feet of operations, manufacturing, administrative space and administrative space.leased space; which is approximately 50,000 square feet of total. Both the contract research services segment and the products segment conduct operations at this facility. The building has been financed by mortgages. On July 12, 2012, we listed the facility for sale with the intent to leaseback 80% of that square footage in which to continue our laboratory and manufacturing operations.

•·            BAS Evansville Inc. is in Evansville, Indiana. Weoccupy 10 buildings with roughly 92,000 square feet of operating and administrative space on 52 acres. Most of this site is engaged in preclinical toxicology testing of developmental drugs in animal models. The contract research services segment conducts operations at this facility.

•           Bioanalytical Systems, Ltd. was located in Warwickshire, UK. This leased facility was closed in our fourth fiscal quarter of 2012. The UK building lease expires in 2023, but includes an opt-out provision after seven years, or in fiscal 2015.

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

ITEM 3-LEGAL PROCEEDINGS

We currently do not have any material pending legal proceedings.

ITEM 4- MINE SAFETY DISCLOSURES

Not applicable.

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PART II

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

Market Information

As of September 30, 2013,2015, our common stock wasshares were traded on the NASDAQ Capital Market under the symbol “BASi”. The following table sets forth the quarterly high and low sales price per share of our common stockshares from October 1, 20112013 through September 30, 2013.2015.

Holders

There were approximately 2,700 holders of record of our common stockshares as of December 23, 2013.19, 2015.

Dividends

We did not pay any cash dividends on our common shares in fiscal years 20122015 or 20132014 and do not anticipate paying cash dividends in the foreseeable future. We pay quarterly dividendsDividends paid on our Series A preferred shares asare discussed in Note 3 to the Notes to Consolidated Financial Statements.

ITEM 6 – SELECTED FINANCIAL DATA

Not applicable.

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

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

In addition, we have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, actual events may differ from those assumptions, and as a result, the forward-looking statements based upon those assumptions may not accurately project future events. The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto included or incorporated by reference elsewhere in this Report. In addition to the historical information contained herein, the discussions in this Report may contain forward-looking statements that may be affected by risks and uncertainties, including those discussed in Item 1A, Risk Factors. Our actual results could differ materially from those discussed in the forward-looking statements. We do not undertake any obligationPlease refer to update anypage 1 of this Report for a cautionary statement regarding forward-looking statement.information.

References to years or portions of years in thethis Item refer to our fiscal year ended September 30, unless otherwise indicated. The following amounts are in thousands unless otherwise indicated.

Business Overview

We are an international contract research organization providing drug discovery and development services. Our clientscustomers and partners include pharmaceutical, biotechnology, academic and governmental organizations. We apply innovative technologies and products and a commitment to quality to help clientscustomers and partners accelerate the development of safe and effective therapeutics and maximize the returns on their research and development investments. We offer an efficient, variable-cost alternative to our clients'customers' internal product development programs. Outsourcing development work to reduce overhead and speed drug approvals through the Food and Drug Administration ("FDA") is an established alternative to in-house development among pharmaceutical companies. We derive our revenues from sales of our research services and drug development tools, both of which are focused on determining drug safety and efficacy. The Company has been involved in the research of drugs to treat numerous therapeutic areas for over 3540 years.

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

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

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

We also believe that the development of innovative new drugs is going through an evolution, evidenced by the significant reduction of expenditures on research and development at several major international pharmaceutical companies, accompanied by increases in outsourcing and investments in smaller start-up companies that are performing the early development work on new compounds. Many of these smaller companies are funded by either venture capital or pharmaceutical investment, or both, and generally do not build internal staffs that possess the extensive scientific and regulatory capabilities to perform the various activities necessary to progress a drug candidate to the filing of an Investigative New Drug application with the FDA.

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

While continuing to maintain and develop our relationships with large pharmaceutical companies, we intend to aggressively promote our services to developing businesses, which will require us to expand our existing capabilities to provide services early in the drug development process, and to consult with customers on regulatory strategy and compliance leading to their FDA filings. Our Enhanced Drug Discovery services, part of this strategy, utilizes our proprietaryCulex® technology to provide early experiments in our laboratories that previously would have been conducted in the sponsor’s facilities. As we move forward, we must balance the demands of the large pharmaceutical companies with the personal touch needed by smaller biotechnology companies to develop a competitive advantage. We intend to accomplish this through the use of and expanding upon our existing project management skills, strategic partnerships and relationship management.

Research services are capital intensive. The investment in equipment and facilities to serve our markets is substantial and continuing. While our physical facilities are adequate to meet market needs for the near term, rapid changes in automation, precision, speed and technologies necessitate a constant investment in equipment and software to meet market demands. We are also impacted by the heightened regulatory environment and the need to improve our business infrastructure to support our operations, which will necessitate additional capital investment. Our ability to generate capital to reinvest in our capabilities, both through operations and financial transactions, is critical to our success. While we are currently committed to fully utilizing recent additions to capacity, sustained growth will require additional investment in future periods. Our financial position could limit our ability to make such investments.

Executive OverviewSummary

Our revenues are dependent on a relatively small number of industries and clients.customers. As a result, we closely monitor the market for our services. For a discussion of the trends affecting the market for our services, see “Item 1. Business – Trends Affecting the Drug Discovery and Development Industry.” In fiscal 2013,2015, we experienced decreased demanda 7.0% decrease in revenues in our Services segment and a 10.2% decrease in revenues for our products and servicesProducts segment as compared to fiscal 2012. We believe2014. Our Services revenue was negatively impacted by fewer bioequivalence studies in fiscal 2015 versus fiscal 2014. These declines were partially offset by an increase in our preclinical services revenue in fiscal 2015. The revenue decline in our Products segment was mainly due to lower sales of our analytical instruments and lower sales of consumables related to ourCulex^®,in vivo sampling product line as compared to the fundamentals of the market and that it will continue to slowly rebound in future periods.prior fiscal year. For fiscal 2014,2016, we plan to focus on sales execution, operational excellence and building strategic partnerships with pharmaceutical and biotechnology companies, to differentiate our company and create value for our clientscustomers and shareholders.

We review various metrics to evaluate our financial performance, including revenue, margins and earnings. Revenues declined approximately 21.8% inIn fiscal 2013, but2015, total revenues decreased 7.7%, gross margin increased 3.2% fromprofit decreased 5.9% and operating expenses were lower by 13.7% as compared to fiscal 2012. Operating expenses declined 33.3% in fiscal 2013 from fiscal 2012. As a result of the improved gross margin and decline2014.The decrease in operating expenses, we haddue in part to the lease rental income and the mediation settlement received in fiscal 2015, contributed to a higher operating income of $830$909 in fiscal 20132015 as compared to an operating loss of $2,491 before restructuring charges$334 in fiscal 2012.

In fiscal 2012, we consolidated our bioanlaytical laboratories into our headquarters in West Lafayette, Indiana, closing facilities in McMinnville, Oregon and the UK to reduce operating costs and strengthen our ability to meet clients’ needs by improving laboratory utilization. We also implemented personnel reductions and other cost cutting measures in Selling, R&D and General and Administrative functions. We will continue initiatives to control costs and improve productivity to achieve our financial objectives.2014. For a detailed discussion of our revenue, margins, earnings and other financial results for the fiscal year ended September 30, 2013,2015, see “Results of Operations – 20132015 Compared to 2012”2014” below.

As of September 30, 2013,2015, we had $1,304$438 of cash and cash equivalents as compared to $721$981 of cash and cash equivalents at the end of fiscal 2012.2014. In fiscal 2013,2015, we generated $1,519$2,104 in cash from operations primarily from the net income we reported versus net lossas compared to $1,684 in fiscal 2012.2014. Total capital expenditures declinedincreased in fiscal 2013, as we limited spending2015 to only necessary expenditures and disposed of assets related to the two closed sites. We negotiated an amendment on our loan with Regions Bank, extending the maturity date to October 2014. We listed for sale our headquarters facility in West Lafayette, Indiana with the intent to leaseback 80% of that square footage in which to continue our laboratory and manufacturing operations. Further, we announced the launch of Culex® NxT, the latest generation of the Company’s proprietary in vivo automated sampling system$1,467, up from $490 in fiscal 2013. We believe we are poised for increased capacity utilization2014, reflecting continued investment in our business as a result of our improved liquidity position and potential strategic growthour credit facility entered into in fiscal 2014.

We believe that the development of innovative new drugs is going through an evolution, evidenced by the significant reduction of expenditures on research and development at several major international pharmaceutical companies, accompanied by increases in outsourcing and investments in smaller start-up companies that are performing the early development work on new compounds. Many of these companies are funded by either venture capital or pharmaceutical investment, or both, and generally do not build internal staffs that possess the extensive scientific and regulatory capabilities to perform the various activities necessary to progress a drug candidate to the filing of an Investigative New Drug (“IND”) application with the FDA.

While continuing to maintain and develop our relationships with large pharmaceutical companies, we intend to aggressively promote our services to developing businesses, which will require us to expand our existing capabilities to provide services early in the drug development process, and to consult with clients on regulatory strategy and compliance leading to their FDA filings. We have launched our Enhanced Drug Discovery services as part of this strategy, utilizing our proprietary Culex® technology to provide early experiments in our laboratories that previously would have been conducted in the sponsor’s facilities. As we move forward, we must balance the demands of the large pharmaceutical companies with the personal touch needed by smaller biotechnology companies to develop a competitive advantage. We intend to accomplish this through the use of and expanding upon our existing project management skills, strategic partnerships and progressive relationship management.

We are focused on improving our total revenues and cash flow from operations in fiscal 20142016.

In January 2015, we entered into a lease agreement with Cook Biotech, Inc. to reducemonetize underutilized space. The initial term of the lease is approximately nine years and 11 months for 50,730 square feet of office, manufacturing and warehouse space located at the Company’s headquarters. We do not believe the lease will materially impact the Company’s business or service capabilities over the foreseeable future. The lease agreement has and will provide the Company with additional cash in the range of approximately $50 per month during the first year of the initial term to approximately $57 per month during the final year of the initial term. Capital improvements up to approximately $800 have or will be required to relocate manufacturingand update our reliance on our lineoffice and meeting space, of credit. If we are unable to increase cash flow from operations in fiscal 2014, we may not have sufficient liquidity to continue our business. Based on our expected revenue, the impactwhich approximately $700 of the cost reductions implemented and restructuring activities during fiscal 2012, we project that we willof the improvements have the liquidity required to meet our fiscal 2014 operations and debt obligations. Though our current line of credit expires on January 31, 2014, as of November 30, 2013, we have reduced our balance on our line of credit to $207 from $1,415 atbeen incurred through September 30, 2013 while continuing2015. The relocation and associated improvements will help to meet all other debt obligationscreate a more lean manufacturing process. We expect to incur the remaining capital improvements in the first fiscal quarter of 2016. The Company accounts for rental payments received as a reduction in general and working capital requirements.

Patient Protection and Affordable Care Actadministrative expense.

In March 2010, the Patient Protection and Affordable Care Act (the “Act”) was enacted by the U.S. Congress and signed into law by the President. The purpose of the legislationOur long-term strategic objective is to extend medical insurance coveragemaximize the Company’s intrinsic value per share.  While we remain focused on reducing our costs through productivity and better processes and a continued emphasis on generating free cash flow, we are dedicated to a higher percentage of U.S. citizens. Many of the provisions in the Act have delayed effective dates over the next decade,strategies that drive our top-line growth. We are intensifying our efforts to improve our processes, embrace change and will require extensive regulatory guidance. Companies inwisely employ our principal client industry, pharmaceuticals, will be required under the Act to provide additional discounts on medicines provided under Medicare and Medicaid to assist in the funding of the program; however, government estimates are that over 31 million additional citizens will eventually be covered by medical insurance as a result of the Act, which should expand the markets for their products. It is premature to accurately predict the impacts these and other competing forces will have on our basic client market, drug development. Additionally, the Act does not directly impact spiraling health care costs in the U.S., which could lead to additional legislation impacting our target markets in the future.stronger liquidity position.

We maintain an optional health benefits package for all of our full-time employees, which is largely paid by our contributions with employees paying a portion of the cost, generally less than 20% of the total. Based on our current understanding of the Act, we do not anticipate significant changes to our programs or of their costs to the Company or our employees as a result of the Act.

We have experienced increases in the costs of our health benefit programs in excess of inflation rates, and expect those trends to continue. We are exploring options in plan funding, delivery of benefits and employee wellness in our continuing effort to obtain maximum benefit for our health care expenditures, while maintaining quality programs for our employees. We do not expect these efforts to have a material financial impact on the Company.

Results of Operations

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

20132015 Compared to 20122014

ServiceServices and ProductProducts Revenues

Revenues for the year ended September 30, 20132015 decreased 21.8%7.7% to $22,068$22,698 compared to $28,208$24,584 for the year ended September 30, 2012.2014.

Our Services revenue decreased 22.7%7.0% in fiscal 2015 to $16,473$17,768 compared to $21,312$19,097 for the prior fiscal year. The consolidation of the McMinnville, Oregon laboratory into the West Lafayette location as well as the closure of the UK facility, both in fiscal 2012, contributedPreclinical services revenues increased due to the decline in bioanalytical analysis revenues in the current fiscal year offset slightly by an increase in the number of samplesmice and rat studies from the prior year as well as the benefit from an early termination of two projects by our customers that accelerated revenue into fiscal 2015 for the nonrefundable portion of the deferred revenue related to assaythese projects at our West Lafayette facility. Pharmaceutical analysis and toxicologythe time of early termination. Other laboratory services revenues were negatively impacted by study delays by clients. The following table showslower pharmaceutical analysis revenues due to fewer bioequivalence studies in fiscal 2015 versus fiscal 2014. Bioanalytical analysis revenues declined due to fewer samples received and analyzed in the fourth quarter of fiscal 2015 plus an increase in method development and validation projects during that time period, which generate lower revenue but involve more detail for our Service revenue.dedicated resources.

Sales in our Products segment decreased 18.9%10.2% from $6,896$5,487 to $5,595$4,930 when compared to the prior fiscal year. The majority of the decline stems from lower sales of consumables associated with our Culex®Culex^®, in-vivoin vivo sampling systems overalong with lower sales of analytical instruments and hardware maintenance and service revenues for the same period of the prior fiscalone year primarily due to the delayed launch of Culex Nxt and the sales of lower-priced refurbished units. The following table shows more detail for our Product revenue.ago.

Cost of Revenue

Cost of revenue for the year ended September 30, 20132015 was $15,013$15,209 or 68.0%67.0% of revenue compared to $21,370,$16,622 or 75.8%67.6% of revenue for the prior fiscal year.

Cost of ServiceServices revenue as a percentage of ServiceServices revenue decreased to 75.4%70.5% in the current fiscal year from 86.7%72.7% in the prior fiscal year. The principal cause of this decrease was the restructuring activitiesearly termination of the preclinical services projects mentioned above. Because of the early termination, certain costs related to the completion of the projects were reduced or eliminated. Reduced spending on operating supplies and animal costs also contributed to the decrease in the second halfcost of fiscal 2012 that reduced our fixed cost base, as well as strict spend monitoring in the current fiscal year.

Cost of Productservice revenue as a percentage of ProductService revenue.

Cost of Products revenue as a percentage of Products revenue in the current fiscal year increased to 46.4%54.5% from 42.0%49.8% in the prior fiscal year. This increase is mainly due to a change in the mix of products sold in the current fiscal year as well as an increaseincreased costs for inventory obsolescence and lean initiatives completed in thefiscal 2015. Lower sales of certain products in fiscal 2015 contributed to higher obsolescence reserve.cost.

Operating Expenses

Selling expenses for the year ended September 30, 20132015 decreased by 58.1%15.7% to $1,366$1,396 from $3,263$1,656 for the year ended September 30, 2012.2014. This decrease stems from restructuring activitiesthe elimination of sales personnel in the prior year,UK and in our Evansville facility in fiscal 2014 as well as reductionsturnover of sales staff in commissions, travel, advertising and consulting expensesWest Lafayette in the currentsecond half of fiscal year.2015. These reductions were partially offset by increased spending for consulting and outside services as well as travel.

Research and development expenses for the year ended September 30, 2013 decreased 16.2%2015 increased 8.7% to $454$715 from $542$658 for the year ended September 30, 2012. This decline is mainly2014. The increase was primarily due to the personnel reductions as part of restructuring activitieshigher salaries from staff additions in fiscal 20122015 and higher spend for supplies related to new product development, partially offset slightly by higher consulting services costs in fiscal 2013.decreased utilization of outsourced professional engineering services.

General and administrative expenses for the current fiscal year decreased 20.3%increased 2.7% to $4,405$5,074 from $5,524$4,940 for the prior fiscal year. The principal reasonsreason for the decrease were lower salaries and benefits due to restructuring activitiesincrease in fiscal 2012, as well as2015 was the provision for bad debt of $505 slightly offset by the building rental income of $350, which was deducted from general and administrative expense, and lower consulting fees and employee search fees in fiscal 2015.

Operating expenses for fiscal 2015 were also favorably impacted by a mediation settlement from a service provider as described in Note 14 to the current fiscal year as we monitored spend closely.condensed consolidated financial statements, which reduced operating expenses by $605, net of legal expenses.

Other Income/Expense

Other income, (expense), net, was $41income of $205 for the year ended September 30, 20132015 as compared to $(629)expense of $1,397 for the year ended September 30, 2012.2014. The primary reason for the change isin expense was due to a decrease in the change in fair value of the warrant liability as well as lower leaseliability. Also, interest expense decreased $201 or 41% in fiscal 2013 as a result of maturities.2015 compared to fiscal 2014 due to the new credit facility entered into in May 2014.

Income Taxes

Our effective tax rate for the year ended September 30, 20132015 was 2.1%1.4% compared to (0.1%)(0.6)% for the prior fiscal year. Current year income is the primary reason for the increase in the effective rate. The priorcurrent year expense primarily relates to state franchise taxes.federal alternative minimum tax similar to fiscal 2014. No net benefits have been provided on taxable losses in the current fiscal year. We continue to maintain a full valuation allowance on our U.S. and UK subsidiary deferred income tax balances.

Restructuring Activities

In March 2012, we announced a plan to restructure our bioanalytical laboratory operations. We consolidated our laboratory in McMinnville, Oregon into our 120,000 square foot headquarters facility in West Lafayette, Indiana. This plan was implemented to reduce operating costsIndiana and strengthen our ability to meet clients’ needs by improving laboratory utilization. In the fourth quarter of fiscal 2012, we decided to initiate closure ofclosed our facility and bioanalytical laboratory in Warwickshire, United Kingdom after careful evaluation of its financial performance and analysis of our strategic alternatives.Kingdom. We continue to sell our products globally while further consolidating delivery of our CRO services into our two Indiana locations. As part of the overall evaluation of our business, personnel reductions in the Selling, R&D and General and Administrative functions were also implemented at both of our Indiana locations during the second half of fiscal 2012. In total, 74 employees were terminated as part of the restructuring activities this fiscal year.

The following table sets forth the costs incurred in connection with these restructuring activities during the year ended September 30, 2012.

Restructuring related costs incurred during fiscal 2012 totaled $1,360 in our Services segment, $0 in our Products segment and $1,835 in corporate expenses.

We reserved for lease payments at the cease use date for our UK facility and have considered free rent, sublease rentals and the number of days it would take to restore the space to its original condition prior to our improvements. In the first quarter of fiscal 2013, we began amortizing into general and administrative expense, , equally through the cease use date, the estimated rent income of $200 when the reserve was originally established. We have been unsuccessful at subleasing the facility. Based on these matters, we have $877$1,000 reserved for UK lease related costs.costs at September 30, 2015. We have previously communicated with the landlord regarding the nature and timing of rent under the lease. The UK building lease expires in 2023 but includes an opt out provision after 7 years, which occurred in the fourth quarter of fiscal 2015 and was exercised.

The following table sets forth the rollforwardroll-forward of the restructuring activity for the year ended September 30, 2013.2015.

Other costs include legal and professional fees and other costs incurred in connection with transitioning services from sites being closed as well as costs incurred to remove improvements previously made to the UK facility. Other activity in the reserve rollforward primarily reflects a receivable for settlement of the capital lease in the UK.

Liquidity and Capital Resources

Comparative Cash Flow Analysis

At September 30, 2013,2015, we had cash and cash equivalents of $1,304$438 compared to $721$981 at September 30, 2012.2014.

Net cash provided by operating activities was $1,519$2,104 for the year ended September 30, 2013,2015, compared to $200net cash usedprovided by operating activities of $1,684 for the year ended September 30, 2012. The2014. Net income in fiscal 2015 compared to a net loss in fiscal 2014 contributed to the increase in cash provided by operating activities in the current fiscal year partially results from our current operating income versus operating loss in the prior year period.activities. Other contributing factors to our cash from operations in fiscal 2015 were noncash charges of $1,723$1,409 for depreciation and amortization $225and $79 for stock option expense and a decrease of $277 in inventory offset slightly by cash paid during the current year for restructuring activities of $580 and a declineas well as an increase in customer advances of $197. $424 and a decrease in inventory of $98. These factors were partially offset, among other items, by an increase in accounts receivable, net of the provision for doubtful accounts, of $579. Days’ sales in accounts receivable increased to 73 days at September 30, 2015 from 49 days at September 30, 2014due to a delay in payments from certain customers and an increase in unbilled revenues. It is not unusual to see a fluctuation in the Company's pattern of days’ sales in accounts receivable. Customers may expedite or delay payments from period-to-period for a variety of reasons including, but not limited to, the timing of capital raised to fund on-going research and development projects.

Included in operating activities for fiscal 20122014 are non-cash charges of $2,278$1,597 for depreciation and amortization as well asand $84 for stock option expense. Working capital changes in fiscal 2014 included an increase in customer advances of $175, a decrease in accounts receivable of $910, a decrease in accounts payable of $2,375, partially$863, an increase in inventory of $185 and a decrease in accrued expenses of $153.

Investing activities used $1,434 in fiscal 2015 due to the restructuring liabilities of $1,405, and cash paid for restructuring activities of $1,251.

Investing activities provided $12capital expenditures as opposed to $490 in fiscal 2013.2014. The proceeds from saleinvesting activity in fiscal 2015 consisted of equipment relate to the equipment disposed ofinvestments in our West Lafayette facility. The decrease incomputing infrastructure, building improvements and other capital spending from fiscal 2012 is a result of cost containment initiatives during the yearimprovements as well as anequipment replacement. The investing activity in fiscal 2014 consisted of investments in capital improvements and equipment replacement. The increase in disposals relatedcapital expenditures in fiscal 2015 reflects the stronger liquidity position of the Company and the investments being made to support our growth initiatives as well as the site closures.investments to relocate our manufacturingand update our office and meeting space following the lease executed with Cook Biotech mentioned earlier.

Financing activities used $947$1,213 in the current fiscal year 2015 as compared to $1,164$1,513 used in fiscal 2012.2014. The main useuses of cash in fiscal 2013 was2015 were for long-term debt and capital lease payments of $918 as well as net payments on our line of credit of $29.$116, capital lease payments of $279 as well as net payments on our long-term debt of $786. The main useuses of cash in fiscal 2012 was2014 were for long-term debt and capital leasenet payments of $1,390. These were slightly offset by net borrowings on our line of credit of $98 and a direct common share purchase$1,213, capital lease payments of $276 as well as net payments on our long-term debt of $16 net of new borrowings, offset in part by Company executives and directors, which provided $128.proceeds for warrant exercises amounting to $183.

Capital Resources

PropertyOn May 14, 2014, we entered into a Credit Agreement (“Agreement”) with Huntington Bank. The Agreement includes both a term loan and equipment, net, spending totaled $8a revolving loan and $1,090 in fiscal 2013 and 2012, respectively. The decrease in spending in fiscal 2013 is the result of cost containment initiatives as well as an increase in disposals during the year.

We have a note payable to Regions Bank (“Regions”) for $5,254 at September 30, 2013, which is secured by mortgages on our facilities in West Lafayette and Evansville, Indiana and a $3,000 line of credit with Entrepreneur Growth Capital LLC (EGC). The EGC line of credit is subject to availability limitations that may substantially reduce or eliminateliens on our borrowing capacity at any time.personal property.

On November 9, 2012, we executed a sixth amendment with Regions which we further modified on December 21, 2012. In the sixth amendment, Regions agreed to extend theThe term loan and mortgage loan maturity dates to October 31, 2013. The unpaid principal on the notes was incorporated into a replacement note payable for $5,786 bearing$5,500 bears interest at LIBOR plus 400325 basis points (minimum of 6.0%) with monthly principal payments of approximately $47$65 plus interest. The replacement note payable is secured by real estateterm loan matures in May 2019. On May 15, 2014, we used the proceeds from the term loan to pay off prior indebtedness. The balance on the term loan at our West LafayetteSeptember 30, 2015 and Evansville, Indiana locations. 2014 was $4,452 and $5,238, respectively.

The replacement note payable hadrevolving loan for $2,000 matures in May 2016 and bears interest at LIBOR plus 300 basis points with interest paid monthly. The revolving loan also carries a facility fee of .25%, paid quarterly, for the unused portion of the revolving loan. The revolving loan includes an annual clean-up provision that requires the Company to maintain a balance of $5,254not more than 20% of the maximum loan of $2,000 for a period of 30 days in any 12 month period while the revolving loan is outstanding. The revolving loan balance was $86 and $202 at September 30, 20132015 and $5,842 at September 30, 2012.2014, respectively. We are currently working with Huntington Bank toward renewing this revolving line of credit prior to the May 2016 maturity date.

On October 31, 2013,May 14, 2015, we executed a seventhfirst amendment to the Agreement with Regions to extendHuntington Bank. As amended, the note payable maturity date to October 31, 2014.

RegionsAgreement requires us to maintain a fixed charge coverage ratio of not less than 1.251.05 to 1.00 for the fiscal quarters ending June 30, 2015, September 30, 2015 and December 31, 2015 and not less than 1.10 to 1.00 for the fiscal quarter ending March 31, 2016 until maturity. The fixed charge coverage ratio calculation excludes up to $1,000 in capital expenditures related to the building renovation costs associated with our lease agreement with Cook Biotech, Inc. executed in January 2015. The Agreement also requires us to maintain a maximum total liabilities to tangible net worthleverage ratio of not greater than 2.103.00 to 1.00. At1.00 from the date of the Agreement through September 30, 2013,2015 and 2.50 to 1.00 commencing after October 1, 2015 until maturity. The Agreement also contains various other covenants, including restrictions on the incurrence of certain indebtedness, liens, investments, acquisitions, asset sales and cash dividends. As of September 30, 2015, we were in compliance with the fixed charge coverage and the total liabilities to tangible net worth ratios in the Regions agreements. Failure to comply with those covenants in future quarters would be a default under the Regions loans, requiring us to negotiate with Regions regarding loan modifications or waivers. If we are unable to obtain such modifications or waivers, Regions could accelerate the maturity of the loans and cause a cross default with our other lender.these covenants.

The Regions loan agreements both contain cross-default provisionsWe entered into an interest rate swap agreement with each other andrespect to the above loans to fix the interest rate with the revolving linerespect to 60% of credit with EGC described below.

The replacement note payable with Regions matures in the first quarter of fiscal 2015. We intend to refinance the amounts in lieu of making balloon payments for the remaining principal balances or sell the building in West Lafayette, Indiana. We have listed for sale our 7.25 acres and 120,000 square foot facility at 2701 Kent Avenue, West Lafayette, Indiana with the intent to leaseback 80% of that square footage in which to continue our laboratory and manufacturing operations. We enlisted a new realtor in the third quarter of fiscal 2013 and changed the asking price to $10,800. We performed an impairment analysis on the building when we listed it for sale, but noted no impairment. As of September 30, 2013, the net book value of the facilityterm loan at approximately 5.0%. We entered into this derivative transaction to hedge interest rate risk of the related debt obligation and land was $9,230.not to speculate on interest rates.

We may be unsuccessfulAs described above on January 28, 2015, the Company entered into a lease agreement with Cook Biotech, Inc. The lease agreement has and will provide the Company with additional cash in renegotiating the termsrange approximately $50 per month during the first year of the Regions debt or they may be unfavorableinitial term to us. For these reasons, if we are unsuccessful at refinancing our long-term debt, our operating results and financial condition could be adversely affected.approximately $57 per month during the final year of the initial term.

Revolving Line of Credit

We have a $3,000 revolving line of credit agreement (“Credit Agreement”) with EGC. The term of the Credit Agreement expires on January 31, 2014. If we terminate prior to the expiration of the term, then we are subject to an early termination fee equal to the minimum interest charges of $15 for each of the months remaining until expiration.

Borrowings under the Credit Agreement bear interest at an annual rate equal to Citibank’s Prime Rate plus five percent (5%), or 8.25% as of September 30, 2013, with minimum monthly interest of $15. Interest is paid monthly. The line of credit also carries an annual facilities fee of 2% and a 0.2% collateral monitoring fee. Borrowings under the Credit Agreement are secured by a blanket lien on our personal property, including certain eligible accounts receivable, inventory, and intellectual property assets, a second mortgage on our West Lafayette and Evansville real estate and all common stock of our U.S. subsidiaries and 65% of the common stock of our non-United States subsidiary. Borrowings are calculated based on 75% of eligible accounts receivable. Under the Credit Agreement, as amended, the Company has agreed to restrict advances to subsidiaries, limit additional indebtedness and capital expenditures and maintain a minimum tangible net worth of at least $8,000. .

The Credit Agreement also contains cross-default provisions with the Regions loans and any future EGC loans. At September 30, 2013, we were in compliance with the minimum tangible net worth covenant requirement. At September 30, 2013, we had available borrowing capacity of $2,238 on this line, of which $1,415 was outstanding and $1,313 of cash on hand. We had an increase in our total borrowing capacity of $311, from $1,927 to $2,238, from the fiscal year ended September 30, 2012 primarily as a result of higher eligible accounts receivable as well as our success in collecting receivables.

Based on our current business activities and cash on hand, we expect to borrow on our revolving credit facility in our first fiscal quarter of 2014 to finance working capital. Failure to comply with the minimum tangible net worth covenant or any other event of default under the Credit Agreement would allow EGC to stop rendering advances and to accelerate the maturity of the outstanding balance. To conserve cash, we instituted a freeze on non-essential capital expenditures and are monitoring all spending closely.

Pursuant to the terms of the Credit Agreement, the line of credit would have automatically renewed on January 31, 2014 unless either party gave a 60-day notice of intent to terminate or withdraw. On October 30, 2013, we informed EGC of our intent not to renew the line of credit on January 31, 2014. We are actively pursuing alternatives to replace this line of credit with more favorable terms. We are focused on growing our revenues and improving our cash flow from operations in fiscal 2014 to reduce our reliance on our line of credit. We may be unsuccessful in obtaining a new line of credit by the maturity date of our current line of credit. If we are unable to continue to increase cash flow from operations in fiscal 2014 or obtain a new line of credit, we may not have sufficient liquidity to continue our business.

For fiscal 2014, we expect to see continued improvement in the volume of new bookings with little improvement in pricing. We also expect to maintain improved gross profit margins due to cost controls implemented in fiscal 2012 and 2013 and our restructuring activities. Based on our expected revenue, the impact of the cost reductions implemented as well as the availability of our line of credit and restructuring activitiesthe rental income received from the lease agreement signed in fiscal 2012,January 2015, we projectbelieve that we will have the liquidity required to meetfund initiatives in support of our strategy for fiscal 2014 operations2016 and debt obligations. Should operations materially failthe foreseeable future, to fund expected costs to be incurred as part of the relocation of our space and to meet our expectations for the coming fiscal year, we may not be able to comply with all of our debt covenants, requiring that we obtain a waiver at that time. If that situation arises, we will be required to negotiate with our lending bank again to obtain loan modifications or waivers as described above. We cannot predict whether our lenders will provide those waivers, if required, what the terms of any such waivers might be or what impact any such waivers will have on our liquidity, financial condition or results of operations.obligations.

The following table summarizes the cash payments under our contractual term debt and other obligations at September 30, 20132015 and the effect such obligations are expected to have on our liquidity and cash flows in future fiscal periods (amounts in thousands). The table does not include our revolving line of credit. Additional information on the debt is described in Note 7, Debt Arrangements.

Equity Offering (amounts in this section not in thousands)

On May 11, 2011, we completed a registered public offering of 5,506 units at a price of $1,000 per unit. Each unit consists of one 6% Series A convertible preferred share which is convertible into 500 common shares at a conversion price of $2.00 per share, one Class A Warrant to purchase 250 common shares at an exercise price of $2.00 per share, and one Class B Warrant to purchase 250 common shares at an exercise price of $2.00 per share.

The designation, rights, preferences and other terms and provisions of the Preferred Shares are set forth in the Certificate of Designation. Until May 11, 2014, the Series A preferred shares havehad a stated dividend rate of 6% per annum, payable quarterly in cash or, subject to certain conditions, in common shares or a combination of cash and common shares, at our election. After May 11, 2014, the Series A preferred shares will participate in any dividends payable upon our common shares on an "as converted" basis.If the preferred shares arewere converted prior to May 11, 2014, we mustwould have also been required to pay to the converting holder in cash, or subject to certain conditions, in common shares or a combination thereof, $180 per $1,000 of the stated value of the preferred shares less any dividends paid prior to conversion (a “make-whole” payment). The Class A Warrants are exercisable immediatelycurrently and expire in May 2016. The Class B Warrants expired in May 2012. The Class A and B Warrants are accounted for as a liability using the fair value for each on the issuance date and are marked to fair value at each reporting date. The net proceeds from the sale of the units, after deducting the fees and expenses of the placement agent and other expenses were $4.6 million. We used the proceeds for the purchase of laboratory equipment and for working capital and general corporate purposes. Because the preferred dividend or make-whole payment is triggered at the option of the preferred shareholder, we recorded the dividend liability at the time of the offering close and will not have any preferred dividendsdividend liability subsequent to the fiscal quarter ended June 30, 2011.

As of September 30, 2013, 4,1712015, 4,321 preferred shares havehad been converted into 2,486,1272,564,108 common shares and 199,573217,366 common shares have been issued for quarterly preferred dividends for remaining outstanding, unconverted preferred shares. NoAs of September 30, 2015, 577,897 warrants have been exercised as of September 30, 2013.exercised. At September 30, 2013, 1,3352015, 1,185 preferred shares and 1,376,500798,603 warrants remained outstanding.

Inflation

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

Critical Accounting Policies

"Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Liquidity and Capital Resources" discusses the consolidated financial statements of the Company, which have been prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires management to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Certain significant accounting policies applied in the preparation of the financial statements require management to make difficult, subjective or complex judgments, and are considered critical accounting policies. We have identified the following areas as critical accounting policies.

Revenue Recognition

The majority of our Bioanalytical and analytical research service contracts involve the development of analytical methods and the processing of bioanalytical samples for pharmaceutical companies. These contractscompanies and generally provide for a fixed fee for each assay method developed or sample processed and revenueprocessed. Revenue is recognized under the specific performance method of accounting. Underaccounting and the specific performance method, revenue and related direct costs are recognized when services are performed. OtherOur preclinical research service contracts generally consist of preclinical studies, for pharmaceutical companies. Serviceand revenue is recognized under the proportional performance method of accounting. Revisions in profit estimates, if any, are reflected on a cumulative basis in the period in which such revisions become known. The establishment of contract prices and total contract costs involves estimates made by the Companywe make at the inception of the contract period.contract. These estimates could change during the term of the contract which couldand impact the revenue and costs reported in the consolidated financial statements. Revisions to estimates have generally not been material. ServiceResearch service contract fees received upon acceptance are deferred until earned, and classified within customer advances, until earned.advances. Unbilled revenues represent revenues earned under contracts in advance of billings.

Product revenue from sales of equipment not requiring installation, testing or training is recognized upon shipment to customers. One product includes internally developed software and requires installation, testing and training, which occur concurrently. Revenue from these sales is recognized upon completion of the installation, testing and training when the services are bundled with the equipment sale.

Long-Lived Assets, Including Goodwill

Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized of the amount by which the carrying amount of the asset exceeds the fair value of the asset.

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

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

The discount rate, gross margin and sales growth rates are the material assumptions utilized in our calculations of the present value cash flows used to estimate the fair value of the reporting units when performing the annual goodwill impairment test. Our reporting units with goodwill at September 30, 20132015 are Vetronics, which is included in our Products segment, bioanalytical servicesBioanalytical Services and preclinical services located in Evansville, Indiana,Preclinical Services, which are both included in our Servicescontract research services segment, based on the discrete financial information available which is reviewed by management. We utilize a cash flow approach in estimating the fair value of the reporting units, where the discount rate reflects a weighted average cost of capital rate. The cash flow model used to derive fair value is sensitive to the discount rate and sales growth assumptions used.

Due to the closure of the McMinnville, Oregon site, we tested for impairment of the bioanalytical business at the end of our third fiscal quarter of 2012 using the cash flow approach as explained above. This test resulted in no impairment to the goodwill valuation as currently recorded on the books.

We performed our annual goodwill impairment test for all reporting units mentioned above at September 30, 2013,2015. There was no indication of impairment for the Bioanalytical Services or Preclinical Services reporting units as of September 30, 2015. We performed our annual goodwill impairment test for all reporting units mentioned above at September 30, 2014. The estimated fair value of our Vetronics reporting unit was less than its related book value and we determined that its goodwill balance was impaired. This was a result of the rates of growth, earnings and cash flow expectations for future performance that were below the Company’s previous projections. In late fiscal 2014, we began shifting our market focus and will no longer actively market the Vetronics product offering. However, we will continue to service the units in the field. Accordingly, step two of the goodwill impairment test was completed for the Vetronics reporting unit which indicatedresulted in an impairment charge totaling $374 in the fourth quarter of fiscal 2014. There was no impairment.indication of impairment for the Bioanalytical Services or Preclinical Services reporting units as of September 30, 2014.

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

At September 30, 2013,2015 and 2014, remaining recorded goodwill was $1,383.$1,009.

Stock-Based Compensation

We recognize the cost resulting from all share-based payment transactions in our financial statements using a fair-value-based method. We measure compensation cost for all share-based awards based on estimated fair values and recognize compensation over the vesting period for awards. We recognized stock-based compensation related to stock options of $225$79 and $83$84 during the fiscal years ended September 30, 20132015 and 2012,2014, respectively.

We use the binomial option valuation model to determine the grant date fair value. The determination of fair value is affected by our common stockshare price as well as assumptions regarding subjective and complex variables such as expected employee exercise behavior and our expected stock price volatility over the term of the award. Generally, our assumptions are based on historical information and judgment is required to determine if historical trends may be indicators of future outcomes. We estimated the following key assumptions for the binomial valuation calculation:

Employee stock-based compensation expense recognized in fiscal 20132015 and 20122014 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and an adjustment will be recognized at that time.

Changes to our underlying stock price, our assumptions used in the binomial option valuation calculation and our forfeiture rate as well as future grants of equity could significantly impact compensation expense recognized in future periods.

Income Tax Accounting

As described in Note 8 to the consolidated financial statements, we use the asset and liability method of accounting for income taxes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.carry-forwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date. We record valuation allowances based on a determination of the expected realization of tax assets.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. We measure the amount of the accrual for which an exposure exists as the largest amount of benefit determined on a cumulative probability basis that we believe is more likely than not to be realized upon ultimate settlement of the position.

We record interest and penalties accrued in relation to uncertain income tax positions as a component of income tax expense. Any changes in the accrued liability for uncertain tax positions would impact our effective tax rate. Over the next twelve months we do not anticipate resolution to the carrying value of our reserve. Interest and penalties are included in the reserve.

As of September 30, 20132015 and 2012,2014, we had a $16 liability for uncertain income tax positions, respectively.

We file income tax returns in the U.S., and several U.S. states, and the foreign jurisdiction of the United Kingdom.states. We remain subject to examination by taxing authorities in the jurisdictions in which we have filed returns for years after 2008.2010.

We have an accumulated net deficit in our UK subsidiary. With the closure of the UK facility, we no longer have any filing obligations in the UK. Consequently, the related deferred tax asset on such losses and related valuation allowance on the UK subsidiary have been removed.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) cost method of accounting. We evaluate inventories on a regular basis to identify inventory on hand that may be obsolete or in excess of current and future projected market demand. For inventory deemed to be obsolete, we provide a reserve for this inventory. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates the estimate of future demand.

Fair Value of Warrant Liability

In May 2011, we issued Class A and B Warrants that are measured at fair value on a recurring basis. We recorded these warrants as a liability determining the fair value at inception on May 11, 2011. Subsequent quarterly fair value measurements, using the Black Scholes model which is considered a level 2 fair value measurement, are calculated with fair value changes charged to the statement of operations and comprehensive income (loss). Class B Warrants expired in May 2012 and the liability was reduced to zero. As of September 30, 2015, 578 Class A warrants have been exercised, leaving 799 outstanding. The fair value of the warrants exercised was $854. The following table sets forth the changes in the fair value of the warrant liability since inception:

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Interest Rate Swap

The Company uses an interest rate swap designated as a cash flow hedge to fix 60% of the Huntington debt due to mitigate changes in interest rates. The changes in the fair value of the interest rate swap are recorded in Accumulated Other Comprehensive Income (AOCI) to the extent effective. We assess on an ongoing basis whether the derivative that is used in the hedging transaction is highly effective in offsetting changes in cash flows of the hedged debt. The terms of the interest rate swaps match the terms of the underlying debt resulting in no ineffectiveness. When we determine that a derivative is not highly effective as a hedge, hedge accounting is discontinued and we reclassify gains or losses that were accumulated in AOCI to other income (expense), net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Building Lease

The Lease Agreement with Cook Biotech, Inc. for a portion of the Company’s headquarters facility is recorded as an operating lease with the escalating rents being recognized on a straight-line basis once the Tenant took full possession of the space on May 1, 2015 through the end of the lease on December 31, 2024. The straight line rents of $53 per month are recorded as a reduction to general and administrative expenses on the Consolidated Statements of Operations and Comprehensive Income (Loss) and other accounts receivable on the Consolidated Balance Sheets. The cash rent received is recorded in other accounts receivable on the Consolidated Balance Sheets. The variance between the straight line rents recognized and the actual cash rents received will net to zero by the end of the agreement on December 31, 2024.

New Accounting Pronouncements

Effective October 1, 2018, the Company will be required to adopt the new guidance of ASC Topic 606,Revenue from Contracts with Customers(Topic 606), which will supersede the revenue recognition requirements in ASC Topic 605,Revenue Recognition. Topic 606 requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance requires the Company to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation. The Company will be required to adopt Topic 606 either on a full retrospective basis to each prior reporting period presented or on a modified retrospective basis with the cumulative effect of initially applying the new guidance recognized at the date of initial application. If the Company elects the modified retrospective approach, it will be required to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes. The Company has not yet assessed the impact of the new guidance on its consolidated financial statements.

In July 2013, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance that requires that an entity net its liability for unrecognized tax positions against a net operating loss carryforward,carry forward, a similar tax loss or a tax credit carryforwardcarry-forward when settlement in this manner is available under the tax law. The Company will adoptadopted this guidance effective at the beginning of its 2015 fiscal year.year with no material effect on the consolidated financial statements.

In August 2014, the FASB issued new guidance inAccounting Standards Update (ASU) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40).” The update provides guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The Company is required to adopt the guidance in the first quarter of fiscal 2017.We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In November 2014, the FASB issued new guidance in ASU No. 2014-16, “Derivatives and Hedging (Topic 815) – Determining whether the host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity.” The guidance clarifies how current GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The Company is required to adopt the guidance in the first quarter of fiscal 2017.We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In February 2015, the FASB amended guidance in ASU No. 2015-02, “Consolidation Topic 810.” The guidance made certain targeted revisions to various area of the consolidation guidance, including the determination of the primary beneficiary of an entity, among others. The Company is required to adopt the guidance in the first quarter of fiscal 2017.We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In April 2015, the FASB amended the existing accounting standards for imputation of interest. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by these amendments. The Company is required to adopt the guidance in the first quarter of fiscal 2017. Early adoption is permitted. The amendments should be applied retrospectively with the adjusted balance sheet of each individual period presented, in order to reflect the period-specific effects of applying the new guidance. The Company is currently evaluating the timing and the impact of this pronouncementthese amendments on its consolidated financial statements.

In February 2013,July 2015, the FASB issued authoritativean amendment to the accounting guidance that amendsrelated to the presentationmeasurement of accumulated other comprehensive incomeinventory. The amendment revises inventory to be measured at lower of cost and clarifies how to reportnet realizable value from lower of cost or market. Subsequent measurement is unchanged for inventory measured using last-in, first-out (LIFO) or the effect of significant reclassifications out of accumulated other comprehensive income. Theretail inventory method. This guidance which becomeswill be effective prospectively for the Company on a prospective basis atfirst quarter of fiscal 2018, with early application permitted. We are currently evaluating the beginning of its 2014 fiscal year, requires footnote disclosures regarding the changes in accumulated other comprehensive income by component and the line items affected in the statements of operations. The adoption of this updated authoritative guidance is not expected to have a significant impact on the Company’s Consolidated Financial Statements.

In December 2011, the FASB issued updated authoritative guidance to amend the presentation of comprehensive income in financial statements. This new guidance allows companies the option to present other comprehensive income in either a single continuous statement or in two separate but consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. Under both alternatives, companies are required to present each component of net income and comprehensive income. The amendment is effective for fiscal years and interim periods beginning on or after December 15, 2011 on a retrospective basis. The adoption ofthat this guidance will not change the previously reported amounts of comprehensive income. The Company has presented other comprehensive income on the face of the condensed consolidated statements of operations for all periods presented. The adoption of this updated authoritative guidance had no effecthave on our consolidated financial condition, results of operations or cash flow.statements.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 8-FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

BIOANALYTICAL SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

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

BIOANALYTICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME (LOSS)
(In thousands, except per share amounts)

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

BIOANALYTICAL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except number of shares)