Inotiv, Inc. - Annual Report: 2021 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

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(Mark One)

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OR

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Commission File Number 000-23357

INOTIV, INC.

(Exact name of the registrant as specified in its charter)

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Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to section 12(g) of the Act: None

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Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. YES ☐         NO ⌧

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Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐         NO ⌧

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ⌧        NO ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ⌧        NO ☐

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

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐       NO ⌧

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Based on the closing price on the NASDAQ Capital Market on March 31, 2021, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $172,225,000. As of December 1, 2021, 24,266,099 of registrant’s common shares were outstanding.

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PART I

This Report contains "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and/or Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Those statements may include, but are not limited to, discussions regarding our intent, belief or current expectations with respect 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; (viii) our ability to effectively integrate the operations and personnel related to recent acquisitions (ix) our ability to effectively manage any future expansion or acquisition initiatives undertaken by the Company; (x) our ability to develop and build infrastructure and teams to manage growth and projects; (xi) our ability to continue to retain and hire key talent; (xii) our ability to market our services and products under relevant brand names; (xiii) our ability to service our outstanding indebtedness; (xiv) our expectations regarding the volume of new bookings, pricing, gross margins and liquidity and (xv) the impact of COVID-19 on the economy, demand for our services and products and our operations, including measures taken by government authorities to address the pandemic, which may precipitate or exacerbate other risks and/or uncertainties. Investors in our common shares are cautioned that reliance on any forward-looking statement involves risks and uncertainties, including the risk factors beginning on page 16 of this Report. Although we believe that the assumptions on which the forward-looking statements contained herein are based are reasonable, any of those assumptions could prove inaccurate and, as a result, the forward-looking statements based upon those assumptions could be significantly different from actual results. In light of the uncertainties inherent in any forward-looking statement, the inclusion of a forward-looking statement herein should not be regarded as a representation by us that our plans and objectives will be achieved. We do not undertake any obligation to update any forward-looking statement, except as required by law.

Dollar amounts herein are in thousands, except for per share amounts and unless otherwise indicated.

ITEM 1–BUSINESS

General

Inotiv, Inc. and its subsidiaries (“We,” “Our,” “us,” the “Company,” or “Inotiv”) is a leading contract research organization ("CRO") specializing in nonclinical and analytical drug discovery and development services to the pharmaceutical, chemical, and medical device industries, and sells analytical instruments to the pharmaceutical development and contract research industries. Our mission is to focus on bringing new drugs and medical devices through the discovery and preclinical phases of development, all while increasing efficiency, improving data, and reducing the cost of taking new drugs to market. Inotiv is committed to supporting discovery and development objectives as well as helping researchers realize the full potential of their critical R&D projects, all while working together to build a healthier and safer world. Our strategy is to provide services that will generate high-quality and timely data in support of new drug and product approval or expand their use. Our clients and partners include pharmaceutical, biotechnology, biomedical device, academic and government organizations. We believe that we offer an efficient, variable-cost alternative to our clients’ internal drug and product development programs. Outsourcing development work to reduce overhead and speed product approvals through the U.S. Food and Drug Administration ("FDA") and other regulatory authorities is an established alternative to in-house product development efforts. We derive our revenues from sales of our research services and instruments, both of which are focused on evaluating drug and product safety and efficacy. The Company has been involved in the research of drugs and products to treat diseases in numerous therapeutic areas for over 47 years since its formation as a corporation organized in Indiana in 1974, under the name Bioanalytical Systems, Inc. On March 18, 2021, the Company filed Articles of Amendment to the Company’s Second Amended and Restated Articles of Incorporation, as amended, and amended its Second Amended and Restated Bylaws, as amended, to reflect a corporate name change from Bioanalytical Systems, Inc. to Inotiv, Inc.

We support both the non-clinical and clinical development needs of researchers and clinicians for primarily small molecule drug candidates, but also provide services to biotherapeutics and device companies. We believe that our scientists have the skills in analytical instrumentation development, chemistry, computer software development, pharmacology,

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histology, pathology, physiology, medicine, surgery, analytical chemistry, drug metabolism, pharmacokinetics, and toxicology to make the services and products we provide increasingly valuable to our current and potential clients. Our principal clients are scientists engaged in analytical chemistry, pharmacology, drug safety evaluation, clinical trials, drug metabolism studies, pharmacokinetics and basic research from small startup biotechnology companies to some of the largest global pharmaceutical companies. We are committed to bringing scientific expertise, quality and speed to every drug discovery and development program to help our clients develop safe and effective life-changing therapies.

Developments within the industries we serve have a direct, and sometimes material, impact on our operations. Currently, many large pharmaceutical companies have major "blockbuster" drugs that are nearing the end of their patent protections. This puts significant pressure on these companies to discover, acquire or develop new drugs with large market opportunity, and to re-evaluate their cost structures and the time-to-market of their products. CROs have benefited from these developments, as the pharmaceutical industry has turned to outsourcing to both reduce fixed costs and to increase the speed of research and data development necessary for new product 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.

A significant portion of innovation in the pharmaceutical industry is now driven by smaller, venture capital funded drug discovery companies. Many of these companies are "single-molecule" entities, whose success depends on one or a few innovative compounds. While several biotech companies have reached the status of major pharmaceutical companies, the industry is still characterized by numerous smaller entities. These developmental companies generally do not have the resources to perform much of their research within their organizations and are therefore increasingly dependent on the CRO industry for both their research and for guidance in preparing their regulatory submissions. These companies have provided significant new opportunities for the CRO industry, including Inotiv. As reported by Frost and Sullivan, the non-clinical market is expected to grow at a compounded annual growth rate of approximately 7% to reach an estimated $24 billion by 2026. We believe that the Company is ideally positioned to serve these clients as they look for alternatives to the large CROs that cater primarily to the large pharmaceutical company segment of the marketplace.

Acquisition Activity

As part of our growth strategy, we work to identify, acquire and integrate opportunistic, accretive acquisition targets. We made several important acquisitions in fiscal 2021 and in the first quarter of fiscal 2022 that we believe will contribute to our continued growth.

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On April 30, 2021, we completed the acquisition of substantially all of the assets of HistoTox Labs, Inc. (“HistoTox Labs”) for a purchase price of approximately $22,389 in cash. HistoTox Labs is a provider of services in connection with non-clinical consulting, laboratory and strategic support services and products related to routine and specialized histology, immunohistology, histopathology and image analysis/digital pathology.

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On May 3, 2021, we completed the acquisition of Bolder BioPATH, Inc. ("Bolder BioPATH") in a merger of Bolder BioPATH with one of our wholly owned subsidiaries for consideration consisting of (i) approximately $17,530 in cash, (ii) 1,588,235 of our common shares valued at approximately $34,520 using the closing price of our common shares on May 3, 2021 and (iii) seller notes in an aggregate principal amount of $1,500. Bolder BioPATH is a provider of services specializing in in vivo models of rheumatoid arthritis, osteoarthritis, and inflammatory bowel disease as well as other autoimmune and inflammation models.

On July 9, 2021, we completed the acquisition of certain assets of BioReliance Corporation (“BioReliance”) for consideration consisting of (i) $175 in cash and (ii) a royalty of 10% of net sales derived from the provision by the Company of genetic toxicology services to existing customers related to the intangible asset acquired through December 2023.  We acquired these assets to support our efforts to further expand our service offerings to include genetic toxicology

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services. The assets acquired consisted of fixed assets and an intangible asset related to customer relationships and standard operating procedures.

On August 2, 2021, we completed the acquisition of Gateway Pharmacology Laboratories LLC (“Gateway”) for consideration consisting of (i) approximately $1,671 in cash, and (ii) 45,323 of our common shares valued at approximately $1,182 using the closing price of our common shares on August 2, 2021.  The Gateway acquisition allowed us to further expand our drug metabolism and pharmacokinetics technology and capability, as well as expand service offerings to include in vitro solutions in pharmacology and toxicology early in drug discovery.

On September 21, 2021, we entered into a definitive agreement and plan of merger (the “Merger Agreement”) pursuant to which we agreed, subject to certain closing conditions, to acquire Envigo RMS Holding Corp. (“Envigo”), a provider of research-quality animals for use in laboratory tests, as well as standard and custom laboratory animal diets and bedding and other associated services for contract research organizations, biopharmaceutical companies, universities, governments and other research organizations, by merger of Envigo with a newly formed, wholly owned subsidiary of ours (the “Envigo Acquisition”).  The Envigo Acquisition was subject to, among other conditions, our receipt of approval from our shareholders to increase the number of our authorized shares to 75,000,000 shares, consisting of 74,000,000 common shares and 1,000,000 preferred shares and to issue the number of common shares required by the Merger Agreement to the Envigo stockholders.  Our shareholders approved the increase in authorized shares and the issuance of the shares required by the Merger Agreement on November 4, 2021 and we closed the Envigo Acquisition on November 5, 2021.  The aggregate consideration paid to the holders of outstanding capital stock in Envigo in the Envigo Acquisition consisted of cash consideration of approximately $271,000, including preliminary estimated adjustments for net working capital and estimated cash balances as provided in the merger agreement of approximately $13,000 and $48,000, respectively, and 9,036,538 of our common shares. The common shares included in the merger consideration included 790,620 common shares issuable upon the exercise of certain Envigo stock options that were assumed by us in the transaction. The preliminary purchase price accounting estimates related to the Envigo Acquisition are described in Note 16 to the consolidated financial statements included as part of this Report. At the closing of the Envigo Acquisition, we entered into a Shareholders Agreement  with certain former shareholders of Envigo that grants certain of those former shareholders, who are now Inotiv shareholders, the right to nominate two persons for election to our board of directors, the right to approve a third director nominated by our Nominating and Corporate Governance Committee (the "Approved Director") and certain registration rights.  Pursuant to the terms of the Shareholders Agreement, as of the effective time of the Envigo Acquisition, our board of directors was expanded to seven members and Nigel Brown, Ph.D. and Scott Cragg were elected to the board to fill the vacancies created by the expansion, and Richard A. Johnson, Ph.D. tendered his resignation as a director, to be effective automatically upon notice from us to Dr. Johnson that the board is prepared to elect the Approved Director as provided in the Shareholders Agreement.  

On October 4, 2021, we closed the acquisition of Plato BioPharma, Inc. (“Plato”) for consideration consisting of (i) approximately $10,000 in cash, (ii) 57,587 Inotiv common shares valued at approximately $1,776 using the closing price of our common shares on October 4, 2021, and $3,000 million in unsecured promissory notes. Plato is a Colorado-based, in vivo pharmacology research and drug discovery company specializing in cardiovascular, renal, pulmonary and hepatic therapeutic areas

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New Service Offering Startups

In fiscal 2021 and 2020, we spent $1,477 and $333, respectively, on startup costs for new service offering that we are building internally such as: clinical pathology; SEND (Standard for the Exchange of Nonclinical Data) data reporting; cardiovascular safety pharmacology; genetic toxicology; biotherapeutics; and medical device histology and pathology. We have hired key leaders during 2021 to assist with these initiatives.  In July 2021, we purchased key genetic toxicology assets from MilliporeSigma’s BioReliance® portfolio, which will help accelerate the startup of our genetic toxicology business. Also, in July 2021, we acquired modern cell and molecular biology instrumentation from a Tennessee-based laboratory that ceased operations. We intend to use these assets to accelerate the startup of our biotherapeutics business. 

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Industry Overview

Drug discovery and development is the process of creating drugs for the treatment of human and animal disease. The drug discovery process aims to identify potential drug candidates, while the drug development process involves the testing of these drug candidates in animals and humans to meet requirements for regulatory approval. The process for researching and developing new medicines is growing in difficulty and length. On average, it takes at least ten years for a new medicine to complete the journey from initial discovery to the marketplace, with clinical trials alone taking six to seven years on average. The average cost to research and develop each successful drug is estimated to be $2.6 billion. This number incorporates the cost of failures, as only a few of the thousands and sometimes millions, of compounds that may be screened and assessed early in the R&D process, will ultimately receive regulatory approval. The overall probability of clinical success (the likelihood that a drug entering clinical testing will eventually be approved) is estimated to be less than 10%.

The CRO industry provides independent product development services to pharmaceutical companies, biotechnology companies, and government organizations. This industry has evolved from providing limited clinical trial services in the 1970s to a full-service industry today characterized by broader relationships with clients and by service offerings that encompass the entire drug discovery and development process, including non-clinical efficacy and safety evaluations, study design, clinical trial management, data collection, biostatistical analyses, regulatory consulting, clinical laboratory and diagnostic services, pre- and post-approval safety analysis, product registration and post-approval support.

Over the past few decades, technological advances, as well as the emergence of the biotechnology industry, have dramatically changed the drug discovery process. New and improved technologies have evolved such as ultra-high-throughput screening, new in vitro and in vivo preclinical profiling techniques and the gene-based drug research commonly referred to as genomics. The objective of these innovations is to find more drug targets and to screen chemical compounds against targets much more quickly, with literally millions of compounds possible. This process is expected to produce many more molecules having the ability to affect biological activity. These molecules then need to be tested quickly and economically to determine their viability as potentially safe and effective drug candidates.

Trends Affecting the Drug Discovery and Development Industry

Our services and products are primarily marketed globally to pharmaceutical, medical research and biotechnology companies and institutions (academic and governmental) engaged in drug research and development. The research services industry is highly fragmented among many niche vendors as well as a small number of consolidating larger companies; the latter offer an ever-growing portfolio of start-to-finish pharmaceutical development services. Our services and products may have distinctly different clients (including separate divisions in a single large pharmaceutical company) and requirements. We believe that market trends in the pharmaceutical and biotech industries demonstrate an increasing emphasis towards outsourcing, as companies seek to maintain reduced internal resources in favor of variable cost models that offer high quality and higher accountability alternatives to meet their drug discovery, development and manufacturing needs. We believe that our clients are facing increased pressure to outsource facets of their research and development activities and that the following factors will increase client outsourcing.

Limited Research Model Availability

During the ongoing COVID-19 pandemic, researchers and CRO’s have experienced significant limitations in their access to animal research models, specifically including a sharp reduction in the availability of non-human primates (NHP) originating from breeding farms in Southeast Asia and limited access to the generation of genetically-modified rodent models used in efficacy evaluations.  Prior to the pandemic, China was the leading exporter of NHP’s employed in basic and applied research; however, early in 2021, China ceased exportation of cynomolgus monkeys, the species most commonly involved in pharmaceutical product development. This change in the world supply of this critical research model has resulted in increased demand from breeding farms principally located in Cambodia, Vietnam, and Mauritius Island, with a resultant marked increase in unit pricing. China’s internal consumption of its domestically-produced research models is not expected to decrease, nor is a loosening of its embargo on their exportation in the future.

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Accelerated Drug Development

Clients continue to demand faster, more efficient, more selective development of an increasing pool of drug and device candidates. Consequently, our clients require fast, high-quality service in order to make well-informed decisions to quickly exclude poor candidates and speed development of successful ones. The need for additional development capacity to exploit more opportunities, accelerate development, extend market exclusivity and increase profitability drives the demand for outsourced services.

Increase in Potential New Drug Candidates

While research and development spending and the number of drug candidates are increasing, the time and cost required to develop a new drug or device candidate have also generally increased. Many small and virtual pharmaceutical and biotechnology companies do not have sufficient internal resources to pursue development of all of the new drug and device candidates on their own. Consequently, these companies are looking to the drug discovery and development services industry for cost-effective, innovative and rapid means of developing new drugs.

Cost Pressures of Introducing New Drugs

Market forces, healthcare reform and other governmental initiatives place significant pressures on pharmaceutical and biotechnology companies to reduce drug prices. In addition, increased competition as a result of patent expiration, market acceptance of generic drugs, and governmental and privately managed care organization efforts to reduce healthcare costs have added to drug pricing pressures. The pharmaceutical industry is responding by consolidating, streamlining operations, decentralizing internal discovery and development processes, and minimizing fixed costs. In addition, increased pressures to differentiate products and justify drug pricing are resulting in an increased focus on healthcare economics, safety monitoring and commercialization services. Moreover, pharmaceutical and biotechnology companies are attempting to increase the speed and efficiency of internal new drug discovery and development processes.

Patent Expiration

As exclusivity ends with patent expiry, drug companies defend their proprietary positions against generic competition with various patent extension strategies. Both the drug company pursuing these extensions and the generic competitors provide additional opportunities for the Company.

Alliances

Strategic alliances allow pharmaceutical companies to share research know-how and to develop and market new drugs faster in more diverse, global markets. We believe that such alliances will lead to a greater number of potential drugs in testing, many under study by small and virtual companies lacking broad technical resources. These small companies can add shareholder value by further developing new products through outsourcing, reducing risk for potential allies. Clients seek realistic business partnerships with their service provider in an effort to ensure that costs are controlled and scientific continuity is maintained as their development programs progress. We have long-standing business relationships with many pharmaceutical companies and continue to offer flexible services and adapt to our clients’ requirements.

Mergers and Acquisitions

Consolidation in the pharmaceutical industry as well as its supporting contract research industry is commonplace. As pharmaceutical industry firms blend personnel, resources and business activities, we believe they will continue to streamline operations and minimize staffing, which will lead to more outsourcing and a dependence on small and virtual drug discovery efforts to feed their pipelines. Consolidation may result in a disruption in the progress of drug development programs as merging companies rationalize their respective drug development pipelines. In addition, we believe that recent consolidation within the contract research industry has created a unique opportunity for the emergence of mid-market CRO providers who can offer clients a high degree of “touch” not only in study execution, but in program design and regulatory agency interactions.

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Biotechnology Industry and Virtual Drug Company Growth

The U.S. biotechnology industry has grown rapidly over the last two decades and has emerged as a key client segment for the drug discovery and development services industry. In recent years, this industry has generated significant numbers of new drug candidates that will require development and regulatory approval. Many biotechnology drug developers do not have sufficient in-house resources to conduct early stage drug development. Many new companies choose only to carry a product to a developed stage sufficient to attract a partner who will manufacture and market the drug. Because of the time and cost involved, these companies rely heavily on CROs to conduct research for their drug candidates.

Unique Technical Expertise

The increasing complexity of new drug candidates requires highly specialized, innovative, solution-driven research not available in all client labs. We believe that this need for unique technical expertise will increasingly lead to outsourcing of research activity. We believe further that the reliance of the pharmaceutical industry on small innovative drug discovery companies, which are often overlooked by large CROs, creates an opportunity for strategic partnership with small, consulting-based and innovative CROs such as ours.

Data Management and Quality Expertise

Our clients and worldwide regulatory authorities require more data, greater access to that data, consistent and auditable management of that data, and greater security and control of that data. We have made investments in software throughout our contract services groups to optimize efficiency and promote compliance with regulations and market expectations.

Globalization of the Marketplace

Foreign firms rely on independent development companies like ours with experience in the U.S. to provide integrated services through all phases of product development and to assist in preparing complex regulatory submissions. Domestic drug firms are broadening product availability globally, demanding local regulatory approval. We believe that we and other domestic service providers with global reach, established regulatory expertise, and a broad range of integrated development services and products will benefit from this trend.

Our Solution

We address the needs of the pharmaceutical and biotechnology industries, as well as academic, non-profit and government organizations, for drug discovery and development by providing integrated products and services to help our clients maximize the return on their research and development investments. We have focused on securing critical supply chain issues particularly related to research models. Our application of innovative technologies and products and our commitment to quality throughout the drug discovery and development process offer our clients a way to identify and develop successful drugs and devices more quickly and cost-effectively. We have obtained significant drug development expertise from more than 47 years of operation, and during 2021 we have added to our CRO service offerings through expansion of current facilities, acquisitions and startup initiatives to build new service offerings internally.

The Company’s Role in the Drug Development Process

In addition to providing research support prior to identification of new product candidates, after a new drug candidate is identified and carried through this preliminary screening, the development process for new drugs has three distinct phases.

1)           The nonclinical phase includes safety testing to prepare an Investigational New Drug ("IND") application for submission to the FDA. The IND must be accepted by the FDA before the drug candidate can be initially tested in humans. Once a pharmacologically active molecule is fully analyzed to confirm its potential utility, the initial dosage form for

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clinical trials is created. An analytical chemistry method is developed to enable reliable quantification. Stability and purity of the formulation are also determined.

Clients work with our nonclinical services group to establish initial pharmacology, pharmacokinetics (PK), pharmacodynamics (PD) and safety characteristics of the drug candidate. The safety studies range from dose ranging studies, that involve acute safety evaluation of drug candidates and medical devices to chronic, multi-year oncogenicity and reproductive toxicity studies. Dose formulation analysis is provided by our pharmaceutical analysis group. Bioanalyses of blood sampled under these protocols by our bioanalytical services group provide pharmacokinetic and metabolism data that is used with the safety and toxicity information to determine the exposure required to demonstrate toxicity. A no observable adverse effect level is then established for the drug and sets the basis for future safety testing and clinical phase I studies. Upon successful completion of nonclinical safety studies, an IND submission is prepared and reviewed by FDA prior to initiation of human clinical trials.

Many of our products are designed for use in discovery and nonclinical development. The Culex® family of robotic automated dose delivery, blood and other biofluids sampling and physiological parameters measurement systems enable researchers to quickly and cost effectively determine PK/PD profiles of drugs in large and small animal models. The Culex® system allows experiments on freely moving conscious animals from early research for therapeutic target validation to lead optimization of compounds. Using the Culex® system, researchers are able to automatically dose and sample in-vivo to develop pharmacokinetic and pharmacodynamic profiles of drugs during early screening in rodents and other animals quickly and cost effectively. Our bioanalytical services group utilizes our depth of expertise in liquid chromatography with detection by mass spectrometry to support research, nonclinical and clinical programs. We also offer bioanalytical services that utilize electrochemistry, spectrophotometric (UV/Vis or fluorescence) and Corona Discharge detection as options. We have invested in robotics and mass spectrometry systems. Application of this technology allows us to rapidly develop and validate methods for new compounds and obtain information suitable for regulatory submission.

2)           The clinical phase further explores the safety and efficacy of the drug candidate in humans. The sponsor conducts Phase I human clinical trials in a limited number of healthy individuals to determine safety and tolerability. Bioanalytical assays determine the availability and metabolism of the active ingredient following administration. Expertise in method development and validation is critical, particularly for new chemical entities. During the clinical phase of development, additional non-clinical animal studies (including sub-chronic and chronic toxicology studies, carcinogenicity studies, reproductive toxicology studies) are performed to allow the drug to proceed through clinical development and to support product registration.

Exhaustive safety, tolerability and dosing regimens are established in patients in Phase II trials. Phase III clinical trials verify efficacy and safety. After successful completion of Phase III trials, the sponsor of the new drug submits a New Drug Application ("NDA") or Biologics License Application ("BLA") to the FDA requesting that the product be approved for marketing. Early manufacturing demonstrates production of the substance in accordance with FDA Good Manufacturing Practices ("GMP") guidelines. Data are compiled in an NDA, or for biotechnology products a BLA, for submission to the FDA requesting approval to market the drug or product. The bioanalytical sample count per study grows rapidly from Phase I through Phase III. Phase II and III studies may take several years to complete, supported by well-proven and consistently applied analytical methods.

Our services include evaluation of bioequivalence and bioavailability to monitor the rate and extent to which a drug is available in the body and to demonstrate that the availability is consistent between formulations. We also offer in-vitro bioequivalence testing for poorly absorbed oral drugs. We offer support and testing services in clinical sample development, release and stability.

3)           The Post-approval phase follows FDA approval of the NDA or BLA. This includes production and continued analytical and clinical monitoring of the drug. The post-approval phase also includes development and regulatory approval of product modifications and line extensions, including improved dosage forms. The drug manufacturer must comply with quality assurance and quality control requirements throughout production and must continue analytical and stability studies of the drug during commercial production to continue to validate production processes and confirm product shelf life. Samples from each manufactured batch must be tested prior to release of the batch for distribution to the public.

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We also provide services during the post-approval phase, including bioequivalence studies of new formulations, line extensions, new disease indications and drug interaction studies. Our ability to offer GMP electrochemical detection services has provided increased business opportunities for release testing.

Increases in our services offerings have resulted in our ability to provide a broader range of services to our clients, often using combined services of several disciplines to address program needs. Our ability to solve problems by combining our knowledge base, services and products has been a factor in our selection by small startup biotechnology companies and major pharmaceutical companies to assist in several preclinical through post-approval phases.

Company Services and Products

Overview

We focus on developing innovative services and products that increase efficiency and reduce costs associated with taking new drugs to market. We operate in two business segments – contract research services and research products, both of which address the bioanalytical, nonclinical, and clinical research needs of drug and device developers. Both segments arose out of our expertise in a number of core technologies designed to quantify trace chemicals in complex matrices.

Contract Research Services

The contract research services segment provides screening and pharmacological testing, nonclinical safety testing, formulation development, regulatory compliance and quality control testing. Revenues from the contract research services segment were $85.8 million for fiscal 2021. The following is a description of the services provided by our contract research services segment:

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Research Products

We focus our products business on expediting preclinical screening of developmental drugs. We compete in small niches of the multibillion-dollar analytical instrument industry. The products business targets unique niches in life science research. We design, develop, manufacture and market state-of-the-art:

Revenues for our products segment were $3.8 million for fiscal 2021. We offer two (2) principal product lines: Analytical Products and In vivo Sampling Products. The following is a brief description of the products offered:

Clients

We provide our services to companies engaged in pharmaceutical R&D. In fiscal 2021 we had sales to over 350 companies, ranging from emerging biopharmaceutical companies up to the largest pharmaceutical companies in the world. Approximately 4.7% and 6.7% of our sales were generated from clients outside of North America in fiscal 2021 and 2020, respectively.

Repeat business from existing clients is important to ongoing operations. Our clients’ needs for our services increase and decrease depending on their research activities, so we experience some client turnover. Our business development efforts focus on generating client loyalty and also on the acquisition of new clients. In fiscal 2021, one client accounted for approximately 6.7% of total sales and 3.0% of total trade accounts receivable at September 30, 2021. In fiscal 2020 this client accounted for approximately 7.0% of total sales and 3.9% of total trade accounts receivable at September 30, 2020. The client discussed is included in our Services segment.

Sales and Marketing

We promote our services through concentrated business development efforts, scientist-to-scientist communications, centralized corporate marketing programs and social media to both pharmaceutical and medical device

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companies, as well as academic and government research institutions. We recognize that our growth depends upon our ability to continually improve client satisfaction in order to deepen existing, and create new, client relationships.

In November of 2019, the Company rebranded its contract research services business as “Inotiv.” Adoption of the tradename Inotiv symbolized the expansion and supplementation of the Company’s legacy contract research service operations through significant business acquisitions as well as internal growth. Since the rebranding, the Company has marketed and otherwise managed its contract research services operations under the name Inotiv. On March 18, 2021, the Company filed Articles of Amendment to the Company’s Second Amended and Restated Articles of Incorporation, as amended, and amended its Second Amended and Restated Bylaws, as amended, to reflect a corporate name change from Bioanalytical Systems, Inc. to Inotiv, Inc. The research product manufacturing division has continued to operate under the name BASi Research Products. BASi Research Products represents more than 45 years of developing niche instrumentation and supplies for commercial and academic partners in the fields of preclinical drug development, neuropharmacology, and electrochemistry research applications. Research product customers equate the BASi brand with high quality instrumentation and excellent scientific support, and maintaining the BASi name on these products provided trust and continuity.

Our commercial initiatives include integrated campaigns designed to help differentiate and promote our products and services. Through trade events, digital and print advertising, direct communication, newsletters, social media, virtual exhibit space and our website, we provide our perspective on current industry challenges and developments to create an ongoing dialogue with our clients and to promote our industry expertise, quality, technology and innovation. Historically, we have reinforced key messages and selling points through client visits, presentations, corporate material and at trade events and industry conferences, although our participation at in-person events has been limited in fiscal 2021 as a result of the COVID-19 pandemic.

We encourage and sponsor the participation of our scientific and technical personnel in a variety of professional endeavors, including via in-person and virtual speaking engagements, the presentation of papers at national and international professional trade meetings and the publication of scientific articles in medical and pharmaceutical journals, although these in-person endeavors were limited in fiscal 2021 as a result of the COVID-19 pandemic. Through these endeavors we seek to further our reputation for professional excellence.

As of September 30, 2021, in addition to our leadership team and scientists, we had 22 employees on our commercial team supporting sales, marketing, client experience and program management for our services clients. To promote our products, we have a network of 20 established distributors covering Japan, South Korea, China, India, Central America, South America, South Africa, the Middle East and Europe. All of our distributor relationships are managed from our corporate headquarters in West Lafayette.

Contractual Arrangements

Our service contracts typically establish an estimated fee to be paid for identified services. In most cases, some percentage of the contract costs is paid in advance. While we are performing a contract, clients often adjust the scope of services to be provided based on interim project results. Fees are adjusted accordingly. Generally, our fee-for-service contracts are terminable by the client upon written notice of 30 days or less for a variety of reasons, including the client’s decision to forego a particular study, the failure of product prototypes to satisfy safety requirements, and unexpected or undesired results of product testing. Cancellation or delay of ongoing contracts may result in fluctuations in our quarterly and annual results. We are generally able to recover, at minimum, our invested costs when contracts are terminated.

Our products business offers both annual and multi-year service and maintenance agreements on many of our product lines.

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Competition

Services

We compete with internal research and development teams at our client companies, as well as other CROs in this industry. Several of our competitors have significantly greater financial resources than we do. The largest CRO competitors offering similar research services include:

CROs generally compete on:

Products

Though many global analytical instruments competitors exist, we have a long-standing network of clients who are repeat buyers and recommend our products. The electrochemistry market is highly competitive and includes a large number of alternative potentiostat vendors, some offering specialized instruments for specific applications. There are fewer vendors that offer the same variety and quality of consumable items (electrodes). Our differentiators are high quality, flexibility to meet clients’ specific needs, wide variety of supporting products and superior technical support and service.

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The most common competitors for our analytical products include:

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The vendors typically compete on

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In contrast, there are few competitors for our in vivo sampling products. The most common competitor is alternative technologies. The primary market includes large pharmaceutical research departments and academic research institutions that may have a larger portfolio of products, which may lead to a deficit of knowledgeable technical support. Our differentiators are high quality, flexibility to meet clients’ specific needs and superior technical support and service. We provide equipment that enables our clients to attain premium scientific laboratory information on a reasonable operating investment. As clients’ needs constantly change, we continually refine our products and develop new products which meet our operating objectives.

Competitors for our in vivo sampling products include:

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The vendors typically compete on

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Government Regulation

The Company is subject to various federal, state, and local laws and regulations and inspections designed to promote compliance therewith. We strive to conduct our business in compliance with applicable laws and regulations. Violations of these laws and regulations by CROs may result in sanctions, including substantial fines, warning letters that require corrective action (including potential facilities improvement requirements), revocation of approvals, exclusion from future participation in government healthcare programs, criminal prosecution and even the denial of the right to conduct business. The Company holds a range of permits and licenses, related to its activities.

We are subject to extensive regulatory requirements designed to ensure the quality and integrity of our data and products and to government inspections and audits related thereto. These regulations include those promulgated under the Federal Food, Drug and Cosmetic Act, as amended from time to time, and include Good Laboratory Practice ("GLP"), Good Manufacturing Practice ("GMP"), Bioequivalence regulations (“BE”) and Good Clinical Practices ("GCP"). These requirements demand rigorous attention to research; development; safety; manufacturing quality control; employee training; detailed documentation; equipment and computer validation; promotion and advertising; careful tracking of changes and routine auditing of compliance. Noncompliance with these standards could result in disqualification of project data collected by the Company, which would substantially impact our ability to meet our obligations to clients, and, in severe cases, discontinuance of selected operations. The products and services we offer to international clients are also subject to foreign regulatory requirements, which vary from country to country. Since our formation, we have been inspected, on a routine basis, by the FDA at each of our locations.

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We are subject to federal, state and foreign healthcare and other regulations, including anti-bribery and anti-corruption laws (such as the U.S. Foreign Corrupt Practices Act of 1977), and could face substantial penalties if we fail to comply with such regulations and laws. In particular, the relationships that we, and third parties that market and/or sell our products, have with purchasers of our products, are subject to scrutiny under various state and federal laws, including those referred to collectively as healthcare fraud and abuse laws.

The Company’s facilities and operations are subject to various federal, state, and local laws and regulations relating to protection of human health and the environment, including those governing the discharge of pollutants into the environment and the storage, handling, use, treatment, disposal, and recycling of hazardous substances and wastes, as further described below. Such laws include, without limitation, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, and the Resource, Conservation, and Recovery Act. As environmental laws and regulations continue to evolve, it is likely the Company will be subject to increasingly stringent environmental standards in the future, particularly under air and water quality laws and standards related to climate change issues. Environmental laws are complex, change frequently and have tended to become increasingly stringent over time.

Analytical Services

Laboratories that provide information included in INDs, NDAs and BLAs must conform to regulatory requirements that are designed to ensure the quality and integrity of the testing process. Most of our contract research services are subject to government standards for laboratory practices that are embodied in regulations for GLP, GMP, BE and GCP. The FDA, Environmental Protection Agency and other regulatory authorities require that test results submitted to such authorities be based on studies conducted in accordance with the regulations listed above. These requirements include but are not restricted to the following areas:

We must also maintain reports for each study for specified periods for auditing by the study sponsor and by the FDA or similar regulatory authorities in other parts of the world. Regulatory monitoring authorities such as the FDA, have indicated an increased emphasis on the management of electronic records generated by computerized systems to ensure data integrity. Noncompliance with these regulations can result in the disqualification of data collected during the preclinical trial.

Nonclinical Services

Our animal research facilities are subject to a variety of federal and state laws and regulations, including The Animal Welfare Act and the rules and regulations enforced by the United States Department of Agriculture ("USDA") and the National Institutes of Health ("NIH"). These regulations establish the standards for the humane treatment, care and handling of animals by dealers and research facilities. Our animal research facilities maintain detailed standard operating procedures and other documentation necessary to comply with applicable regulations for the humane treatment of the animals in our custody. If the USDA determines that our equipment, facilities, laboratories or processes do not comply with applicable Animal Welfare Act standards, it may issue an inspection report documenting the deficiencies and setting deadlines for any required corrective actions. For continued noncompliance, the USDA may impose fines, suspend and/or revoke animal research licenses or confiscate research animals. In addition to being licensed by the USDA as a research facility, we are also accredited by the Association for Assessment and Accreditation of Laboratory Animal Care International and have registered assurance with the NIH.

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Quality Assurance and Information Technology

To promote compliance with applicable regulations, we have established quality assurance programs at our facilities, which include auditing of test data, personnel training, review of procedures and regular inspection of facilities. Regulatory guidelines serve as a basis for our Standard Operating Procedures (“SOPs”) where applicable. On an ongoing basis, we endeavor to standardize SOPs across all relevant operations. We have both developed and purchased software to ensure compliant documentation, handling and reporting of laboratory-generated study data.

We adhere to 21 CFR Part 11 (FDA regulations on electronic records and electronic signatures that define the criteria under which electronic records and electronic signatures are considered to be trustworthy, reliable and equivalent to paper records). Our contract research operations were compliant with applicable U.S. FDA regulations (including 21 CFR Part 11) in our analytical, bioanalytical, toxicology, laboratory information management, and document management systems. Systems compliant with 21 CFR Part 11 were formally validated and released for use in regulated studies.

We manage our business systems through the use of an Enterprise Resource Planning ("ERP") system. We are continually refining and adjusting our ERP system to improve efficiency, provide better management tools and address changes in our business. These changes are appropriately documented and tested before implementation. We also test these systems in connection with management’s annual review of our internal control systems. Management’s assessment and report on disclosure controls and procedures and internal controls over financial reporting is included in Item 9A.

Controlled, Hazardous, and Environmentally Threatening Substances

Some of our development and testing activities are subject to the Controlled Substances Act administered by the Drug Enforcement Agency ("DEA"), which strictly regulates all narcotic and habit-forming substances. We maintain restricted-access facilities and heightened control procedures for projects involving such substances due to the level of security and other controls required by the DEA.

Our laboratories are subject to licensing and regulation under federal, state and local laws relating to hazard communication and employee right-to-know regulations, the handling and disposal of medical specimens and hazardous waste, as well as the safety and health of laboratory employees. All of our laboratories are subject to applicable federal and state laws and regulations relating to the storage and disposal of laboratory specimens, including regulations of the Environmental Protection Agency, the Department of Transportation, the National Fire Protection Agency and the Resource Conservation and Recovery Act. The Company may incur liability for alleged environmental damages associated with the off-site transportation and disposal of hazardous substances. Generators of hazardous substances which are transported to disposal sites where environmental problems are alleged to exist are subject to claims under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, and state counterparts. CERCLA Imposes strict, joint and several liabilities for investigatory and cleanup costs upon hazardous substance generators, site owners and operators, and other potentially responsible parties. The Company may be held liable for all costs arising out of any release of hazardous substances and for consequences arising out of human exposure to such substances, which costs may be material. In addition, changes in any environmental laws may increase costs of compliance and liabilities arising from any past or future releases of, or exposures to, hazardous substances and may materially adversely affect the business.

The regulations of the U.S. Department of Transportation, the U.S. Public Health Service and the U.S. Postal Service apply to the surface and air transportation of laboratory specimens. Our laboratories must also comply with the International Air Transport Association regulations which govern international shipments of laboratory specimens. Furthermore, when materials are sent to a foreign country, the transportation of such materials becomes subject to the laws, rules and regulations of such foreign country.

Safety

In addition to comprehensive regulation of safety in the workplace generally, the Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for health care employers, whose workers may be exposed to blood-borne pathogens such as HIV and the hepatitis B virus, chemicals and drugs, and

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respiratory hazards. These regulations, among other things, require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to chemicals, transmission of blood-borne and airborne pathogens, and other potential hazards. Relevant employees receive initial and periodic training focusing on compliance with applicable hazardous materials regulations and health and safety guidelines.

HIPAA

Under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), the U.S. Department of Health and Human Services regulates the disclosure of confidential medical information in the United States. We have had a global privacy policy in place since January 2001 and believe that we are in compliance with HIPAA and current European Union requirements regarding confidential medical information. We continue to monitor our compliance with these regulations, and we intend to take appropriate steps to promote compliance as these and other privacy regulations are revised or additional regulations come into effect.

Product Liability and Insurance

We maintain product liability and professional errors and omissions liability insurance, providing coverage on a claims-made basis. Additionally, in certain circumstances, we seek to manage our liability risk through contractual provisions to be indemnified by the client or covered by the client’s liability insurance policies. Also, in certain types of engagements, we seek to limit our contractual liability to clients to the amount of fees received. Our client contractual arrangements are subject to negotiation, and the terms and scope of indemnification, liability limitation and insurance coverage vary by client and project.

Research and Development

In fiscal 2021 and 2020, we spent $405 and $617, respectively, on research and development. In addition to research and development for additional contract research services, we maintain applications research and development to enhance our products business. Expenditures cover hardware and software engineering costs, laboratory supplies, labor, prototype development and laboratory demonstrations of new products and applications for those products.

Intellectual Property

We believe that our patents, trademarks, copyrights and other proprietary rights are important to our business. Accordingly, we actively seek protection for those rights both in the United States and abroad. Where we deem it to be an appropriate course of action, we will vigorously prosecute patent infringements. The loss of any one or more of our patents, trademarks, copyrights or other proprietary rights could be material to our consolidated revenues or earnings.

We currently hold three U.S. federally registered trademarks. We also have two issued U.S. patents on the Dried Blood Spot (DBS) sampling card for the Culex® Automated Blood Sampling Instrumentation. There are also twelve issued international patents for this technology in Japan, Canada, Europe, Belgium, Switzerland, Germany, Spain, France, the United Kingdom, Italy, Netherlands, and Sweden. Additionally, we have three issued U.S. patents for the Empis Automated Drug Infusion technology for the Culex® instrument. There are fourteen issued international patents for this technology in Europe, Japan, Canada, Belgium, Switzerland, Germany, Denmark, Spain, France, the United Kingdom, Hungary, Ireland, Sweden, and Turkey. There is one additional issued U.S. patent and thirteen issued international patents in Belgium, Canada, Switzerland, Germany, Denmark, Europe, Spain, France, The United Kingdom, Italy, Japan, Netherlands and Sweden relating to the No Blood Waste technology for the Culex® instrument. There is also one issued U.S. patent relating to pinch valve technology.

Our issued patents are protected for durations ranging from June of 2022 to February of 2034. In addition to these formal intellectual property rights, we rely on trade secrets, unpatented know-how and continuing applications research which we seek to protect through means of reasonable business procedures, such as confidentiality agreements.

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Raw Materials

There are no specialized raw materials that are particularly essential to our business. We have a variety of alternative suppliers for the components in our products.

Human Capital Management

At September 30, 2021, we had 541 full-time employees and 26 part-time employees. All employees enter into confidentiality agreements intended to protect our proprietary information. We believe that our relations with our employees are good. None of our employees are represented by a labor union. Our performance depends on our ability to attract and retain qualified professional, scientific and technical staff. The level of competition among employers for skilled personnel is high. We believe that our employee benefit plans enhance employee morale, professional commitment and work productivity and provide an incentive for employees to remain with the Company.

Our primary objectives and philosophy of our compensation programs are to (i) drive leadership behaviors that maximize long-term stockholder value creation, (ii) attract and retain talented colleagues with the skills necessary to successfully manage and grow our business.    

Attracting, retaining, and developing talent is a core principle of our talent management and total rewards strategy. Compensation and benefit programs are an important part of our employment relationship, which also includes challenging and rewarding work, growth and career development opportunities and being part of a leading contract research organization with a diverse and talented workforce that helps develop life-changing therapies. We strive to have the following features as part of our compensation and benefits:

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Compensation will be used to attract, retain, and motivate employees and to reward the achievement of business results through the delivery of competitive pay and discretionary incentive programs. Benefits provide employees with income security and protection from catastrophic loss. We will continue to evaluate and develop affordable, competitive benefit programs that meet these objectives. No one element is more important than any other, and business judgement is used to balance them to ensure our compensation and benefits strategy are effective in supporting our overall business strategy.

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Our Guiding Principle’s consist of:

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Attracting, retaining, and developing world class talent that is empowered to work together to compete and win is a fundamental aspect of our corporate strategy. A foundational principle of our talent management strategy is an

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unwavering commitment to equal opportunity in all aspects of employment, including the way we compensate and reward our employees.

Envigo Business

We entered into a Merger Agreement with Envigo on September 21, 2021 and completed the Envigo Acquisition on November 5, 2021. Following completion of the Envigo Acquisition, Envigo is a direct, wholly owned subsidiary of Inotiv, Inc. In order to provide our shareholders and other investors with information that is relevant to our business, we are providing a description of Envigo's business below. References in this discussion to "Envigo" include Envigo and its direct and indirect subsidiaries.

Overview

Envigo is primarily a products business that provides research-quality animals for use in laboratory tests, as well as standard and custom laboratory animal diets and bedding and other associated services for contract research organizations, biopharmaceutical companies, universities, governments and other research organizations. Envigo provides our customers with laboratory animals used in basic research and product development and non-clinical testing of compounds to support the development and approval of new medicines. Utilizing its portfolio of products, Envigo enables our customers to create a more flexible product development model and reduce their costs, enhance their productivity, and increase speed to market. Envigo's vision, working together to build a healthier and safer world, includes helping our customers meet certain regulatory requirements in order to bring life-saving and life-enhancing new medicines to patients.

Envigo is the second largest commercial provider of research model products and services globally and has been supplying research models since 1931. With over 130 different strains, Envigo is a global leader in the production and sale of the most widely used rodent research model strains, and is able to offer the broadest range of species in our sector. Envigo also manufactures and sells premium Teklad brand diets for laboratory animals and provides a variety of related services that are designed to assist our clients in the use of animal models in research and development. Envigo maintains production centers, including barrier and isolator facilities, in the U.S., U.K., mainland Europe, and Israel.

Envigo's Market

The market for Envigo's services includes contract research organizations, biopharmaceutical companies, universities, governments and other research organizations.

Envigo offers a broad range of research-quality small and large animal models, research-quality standard and custom diets, as well as an associated suite of services to support the research community. Envigo's portfolio of products and services provides our customers vital support in their efforts to perform fundamental life sciences research, as well as developing life-saving and life-enhancing new medicines.

We believe that Envigo is well positioned to benefit from the following market trends:

Increased Research & Development (“R&D”) spending by biopharmaceutical companies. As reported by Frost and Sullivan, the non-clinical market is expected to grow at a compounded annual growth rate of approximately 7% to reach an estimated $24 billion by 2026. Drivers of this growth include the increased complexity of studies required by global drug regulators to better predict safety and efficacy of compounds in development, and growth in personalized medicine leading to more targets for discovery and safety assessment work.

Demand for NHPs. Since their inception in the 1980’s, biological therapies, such as monoclonal antibodies, have been growing in importance as powerful new tools to manage and treat disease and, as such, have represented an increasing proportion of novel drugs in development. For many biotherapeutics, the ability to assess safety, which is a vital step in the development and approval of a new medicine, is critically dependent upon the ability of the potential drug to bind to its target receptor in the model organism. The closest animal model to a human is the non-human primate, and in many cases, this is the only species in which these developing medicines will bind. We believe the trend for increasing numbers of new biological therapies will continue and drive additional demand for NHPs. As the largest importer of NHPs in North America, with long-established relationships with the source breeders around the world, Envigo is favorably positioned for this trend.

Increasing research complexity and specificity. Over recent years, searching for new therapies has become increasingly complex and specific as our understanding of disease mechanisms and pathways has increased.

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Researchers have increasingly looked for specific ways to interact with the molecular pathways during disease development and progression. This has led to increasing demand for animal models that not only have those same, or similar, pathways, but models that have been altered so that, for example, critical elements of those pathways have been removed or replaced with the human versions. The ability to generate these altered animals relies on molecular tools that can alter the DNA of the animal to achieve the desired model, a so-called ‘transgenic’ animal model. These modified models are becoming increasingly important tools for researchers to better understand disease progression and pathology, and then to develop more highly-targeted therapies.

Envigo's Role in Drug Development

Envigo offers products and services that are critical to drug discovery, development and registration. Discovering and developing new drugs is an expensive and time-consuming process and is highly regulated. Before a new drug reaches commercialization, it must undergo extensive non-clinical and clinical testing to verify that it is safe and effective.

Drug discovery represents the earliest stages of research in new drug development, directed at the identification, screening, and selection of lead molecules for further development. During this stage, new molecules are tested for therapeutic value using various in silico, in vitro and in vivo models. Discovery activities typically extend anywhere from three to six years.

Envigo's laboratory animals and research models are extensively used by academic research centers, government agencies and biopharmaceutical companies engaged in drug discovery. In addition, the Food and Drug Administration (“FDA”) and other regulatory agencies require that the safety and efficacy of new drug candidates be tested in research models like Envigo's prior to product registration. As a result, Envigo's research models are an essential part of the drug research and development process.

Envigo is unique in being the only provider that can supply the whole range of animal model species that regulatory agencies, such as the FDA, require for the safety assessment of both small chemical and biological new drugs.

Research Models and Services (“RMS”)

Envigo's RMS business is comprised of (1) Research Models, (2) Diets and Bedding, and (3) Research Model Services.

Research Models. Envigo's research models business is comprised of the commercial production and sale of laboratory animals and research models, principally purpose-bred rats and mice and large animal models (NHPs, canines and rabbits) for use by researchers. Envigo provides these models to numerous customers around the world, including many academic institutions, government agencies, biopharmaceutical companies, and contract research organizations. Envigo has a global footprint with production facilities strategically located in six countries. Envigo's operations are located in close proximity to our customers, enabling it to provide top-tier customer service with a high degree of animal welfare.

Envigo's research models include standard stocks and strains, immunocompromised models (which are useful for oncology research), disease models (which are in demand as early-stage research tools) and genetically-engineered models (“GEMs”, which are often created for specific research projects).

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Small Animal Research Models. Envigo's rodent species have been, and continue to be, some of the most extensively used research models in the world, largely as a result of Envigo's geographic footprint and commitment to quality and customer service. Envigo's products create high customer loyalty, due to the strong preference of customers to avoid variability in their data and to work with an industry founder with more than 90 years of experience. Envigo's small animal research models are bred and maintained in controlled environments, which are designed to ensure that the models are free of specific viral and bacterial agents, and other contaminants that can disrupt research operations and distort research results. With its production capabilities, Envigo strives to consistently deliver high-quality research models worldwide.

Envigo's rodent research models include:

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Certain of Envigo's models are proprietary, disease-specific rodent models used to research treatments for diseases such as diabetes, obesity, cardiovascular and kidney disease.

Large Research Models. Envigo's large animal portfolio includes NHPs, canines and rabbits. NHPs are generally imported into the U.S. from Asia and Africa, with very limited breeding in the U.S. Envigo operates a large quarantine facility in the U.S. to house and clear these imported animals, ensuring they have high health status before onward shipment to customers. NHPs are used by our customers primarily for the safety testing of new biological therapies. Canines are purpose-bred in the U.S. and used primarily for the safety testing of new chemical therapies. Rabbits are bred in both the U.K. and U.S. and utilized primarily for the reproductive safety testing of potential new therapies.

Diets and Bedding. Through its Teklad product line, Envigo produces and sells laboratory animal diets, bedding, and enrichment products. With primary manufacturing operations in the U.S. and a primarily company-owned and/or managed distribution network throughout the U.S., U.K. and Europe, Envigo distributes Teklad products globally. Envigo also maintains contract-manufacturing relationships with companies in the U.K. and Italy. In October 2019, Envigo RMS, LLC (“Envigo U.S.”) entered into a master services agreement with Vanguard Supply Chain Solutions LLC (“Vanguard”) to provide transportation and warehousing services for its operations in the U.S. and Canada for research models and Teklad products. Prior to this agreement, Envigo had utilized internal resources to transport its research models and large laboratory animals, and transport and warehouse its Teklad products in those geographies.

Teklad has been manufacturing animal diets for over 40 years and offers a full line of off-the-shelf formulations as well as custom diets to meet our customers’ specific research needs. A team of nutritionists, including several PhD’s, works with our customers to determine the best diet for their research objectives. If a custom diet is required, our nutritionists define the appropriate formula and our custom diet manufacturing line produces the feed. Our manufacturing facilities are ISO 9001:2008 certified.

Teklad diets are manufactured from natural ingredients and use fixed formulas. In conjunction with strict quality standards for raw materials, this approach ensures quality and consistency by minimizing variability of both nutrients and certain natural chemicals in the diet which might affect a research study. Teklad offers a variety of bedding and enrichment products to support model breeding, weaning, and holding.

Research Model Services. Envigo also offer a variety of services designed to support our customers' use of research models in basic research and product development. These services include specialized surgical modifications such as cannulation, implants, and the creation of surgically derived disease state models. Envigo also provides contract breeding, contract colony management, health monitoring, quarantine, cryopreservation, rederivation and revitalization services, as well as antibody development and production. In addition, Envigo offers care and boarding services for customer-owned animals at its facilities. Lastly, through the Envigo GEMS business, Envigo is able to offer the creation of new transgenic research models specific to individual customers’ needs.

Envigo's Competitive Strengths

We believe that Envigo is well positioned to capitalize on favorable trends in the research industry and provide differentiated solutions to our customers based on the key competitive strengths set forth below:

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Envigo's Growth Strategy

Envigo's objective is to be a preferred strategic partner for our customers. Envigo's strategy is to deliver a comprehensive portfolio of research model products and services to support our customers’ research and development requirements, and enable them to conduct essential research faster and more cost effectively.

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Customers

Envigo's customers consist primarily of biopharmaceutical, contract research organizations, leading hospitals, academic institutions and government agencies. In 2020, Envigo received orders from companies ranging from some of the largest in their respective industries to small, start-up organizations. Envigo has stable, long-term relationships with many of our customers. During the twelve months ended September 30, 2021, one customer accounted for 31% of Envigo's total revenue from continuing operations.

During the twelve months ending September 30, 2021, Envigo derived 46% our revenue from CROs, 23% from academic institutions, 16% from biopharmaceutical companies, 7% from government institutions and 8% from other organizations.

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Envigo continues to pursue a goal of expanding its relationships with customers through broadening its product and service offering.

Sales, Marketing and Customer Support

Envigo sells its products and services principally through a direct sales force, inside sales team and account management teams who work throughout North America and Europe. In addition to interactions with the direct sales force, our primary promotional activities include a marketing mix of customer acquisition and customer retention tactics including organizing scientific symposia, publishing scientific papers and newsletters, hosting webinars and making presentations at, and participating in scientific conferences and trade shows in North America, Europe and Asia. Envigo supplements these scientifically-based marketing activities with internet-based marketing, advertising and direct mail.

Envigo has proven sales teams with the ability to build relationships with new customers and to grow within existing customers.

Envigo's internal marketing teams support the field sales staff and account management teams while developing and implementing programs to create close working relationships with our customers in the research community. Envigo maintains customer service, technical assistance and consulting service departments, which address our customers' routine and more specialized needs and serve as a scientific resource for them. Envigo frequently assists customers in solving problems related to animal husbandry, health and genetics, biosecurity, regulatory strategy, and other areas.

Competition

Competition in Envigo's market segments includes:

There is competition for customers on the basis of many factors, including scientific and technological expertise, quality, reputation, responsiveness, price, scope of product and related service offerings, and geographic presence.

We believe there are significant barriers to becoming a global provider including the construction of bio-secure barrier production facilities, flexible-film isolator production facilities and the population of these facilities with over 130 strains of animal models requires years of investment and strict operating procedures.

Industry Support and Animal Welfare

Envigo is committed to delivering first-class health and genetic quality, operational performance and customer service. High standards of animal welfare are vital to each of these, and so are integral to Envigo's business success.

Envigo has been at the forefront of animal welfare improvements and the humane care of laboratory animals. Envigo is a leading advocate for implementation of the 3Rs (Replacement, Reduction and Refinement). Members of Envigo's scientific and technical care staff undertake continuing professional development in the field of laboratory animal science, with special focus to animal welfare and the 3Rs, and they are encouraged to publish and present within the scientific community.

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Envigo has formed an internal Institutional Animal Care and Use Committee, comprising staff from many disciplines within Envigo, in addition to external representation, to comply with applicable regulations and provide strict oversight of animal welfare matters. Envigo's animal production facilities in the U.S. and the Netherlands, are accredited by the Association for Assessment and Accreditation of Laboratory Animal Care International (“AAALAC”), a private, non-profit, international accrediting organization that promotes the humane treatment of animals in science through voluntary accreditation and assessment programs. Envigo's facilities are routinely inspected by government agencies tasked with enforcing animal welfare regulations.

Envigo is firmly committed to the 3Rs and to reducing the number of animals used in research by emphasizing health and genetic integrity to decrease study data variability. Whenever possible, Envigo uses technological advances, such as new diagnostic tests for screening pathogens in laboratory rodents, micro-sampling and in vitro assays.

Laboratory animals remain an essential component in the research and development that our customers conduct. They further our knowledge of living systems and help in the discovery and development of products that can save or enhance people’s lives. Envigo works with the scientific community to improve our understanding and promote best practice in the care and welfare of research animals. As providers of research models to the research community, Envigo is responsible to our customers and the public for the health and well-being of the animals in our care.

Environmental, Social and Governance Principles

Envigo endeavors to fully comply with all applicable environmental, social and governance criteria. Envigo's strengths include, among other areas, its dedicated responsibility for environmental issues; its waste management and hazardous substances handling procedures; labor and human rights policies (including employee health and safety); customer protection policies and efforts; and policies on anticorruption and bribery.

Animal Welfare. Envigo maintain policies regarding animal welfare. Given Envigo's line of business, animal welfare is one of its highest priorities, as it is crucially important from both an ethical and a good business practices perspective.

Environmental. Envigo maintains policies regarding appropriate energy use, treatment of waste, and natural resource conservation.

Social. Envigo's business practices stress ethical engagement with suppliers and customers. Envigo has implemented a Suppliers and Contractors Governance Policy. We believe that Envigo provides a crucial, socially important service: safety testing services that are mandated by governments around the world as a crucial step in the discovery and safe development of pharmaceuticals.

Governance. Envigo has adopted and implemented a Global Code of Conduct for all employees and internally promotes an anonymous, third-party whistle-blower hotline (located at envigo.com/integrity). Envigo has put in place stringent anti-corruption and anti-bribery policies and does not participate in any type of political fund raising or political action committee efforts.

Human Capital Resources

As of September 30, 2021, Envigo had approximately 1,200 employees. Envigo's workforce was distributed geographically approximately as follows: 65% in North America and 35% in the rest of the world (primarily UK and Europe).

In addition to growth opportunities, Envigo strives to attract, motivate, and retain top talent by endeavoring to provide competitive compensation levels while rewarding outcomes and behaviors that align with our performance, culture, and values. 2020 marked the first year that Envigo commenced a competitive market compensation philosophy and pay guidelines for all positions in the U.S. and completed the same approach in the U.K. at the end of first quarter of 2021. This deliberate focus elevated Envigo's competitive pay position in the life science industry overall, but more importantly in the local markets in which Envigo conducts business.

Pay equity analyses are performed in countries where they are legally required, and Envigo is embarking on embracing an internal pay equity analysis as part of internal auditing, in an effort to ensure pay fairness and selling, general and administrative oversight. Our assertive position on pay should ensure our continuing efforts to be competitive in the marketplace. Furthermore, Envigo continues to build on a global job architecture that allows for aligning pay by job role (slotting) with market rates and serves as a career path tool to encourage a culture of upward mobility and retention.

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Correspondingly, Envigo also promotes a healthy and safe workplace for its employees. Envigo maintains a Global Policy on Environmental Safety & Health and sustainability and, as part of its efforts to promote its goal of working safely. In the second half of 2019, Envigo implemented a management system approach to complement its safety performance, which involves both employee and management engagement and ownership of its site-level environmental, health, safety, and sustainability programs globally. At every Envigo site, Envigo has dedicated site champions and empowers all employees to act and behave as safety leaders promoting employee health and safety; additionally, Envigo has programs and communications that keep site management engaged in their local health and safety programs. Moreover, the COVID-19 pandemic has further underscored the importance of keeping employees safe and healthy. In response to the pandemic, Envigo has taken actions to protect the workforce so they can more safely and effectively perform their work. Envigo has established a global crisis management team (“ICARE”), which includes a team of internal subject matter experts who have been closely monitoring the COVID-19 outbreak and its impact on employee safety and Envigo's global business operations. As Envigo navigates the pandemic and focuses on keeping people safe, Envigo continues to establish stringent safety protocols at its operating and regional corporate sites. As always, Envigo's goal is to provide a safe work environment for employees, while still meeting our customer’s needs.

Envigo's global and site business continuity plans are comprehensive, active, and regularly updated as Envigo continues to meet requirements for supporting COVID-19 guidelines.

Envigo is also committed to cultivating a welcoming and inclusive environment. Operating in 32 facilities and in eight countries worldwide, Envigo believes in treating its employees and prospective talent with dignity, decency, and respect. Envigo recognizes that the mix of its employees contributes to a more innovative, inclusive and productive workforce and that embracing people of all backgrounds and experiences is a strength for its business. Envigo's goal is to continue to build a talented workforce reflective of the global communities in which we live and work, and it is critical that our people feel like valued members of our company.

Likewise, Envigo believes that it has begun to take positive steps to promote a sense of belonging for its employees in the workplace by building our initiatory DE & I committee (Diversity Equity and Inclusion); expanding diversity representation at our senior level management; and developing a plan to centralize diversity and inclusion resources for all employees. Additionally, this committee will be tasked with facilitating senior leadership training on cultural differences, anti-harassment and anti-discrimination, unconscious bias, and micro-inequities; and rolling out a diverse selection process in collaboration with our talent acquisition team related to hiring.

As of December 1 2021, women made up approximately 55% of Envigo's global workforce and 39% of Envigo's global leadership positions, defined as positions carrying the title of Director to Vice President.

Envigo's employees are not unionized in the U.S. However, employees at some of its European facilities are represented by works councils, which are employee representative groups and/or unions, which is consistent with local customs for our industry. Envigo collaborates with the works councils and believes it has good relationships with our employees.

Properties

Envigo owns or leases the land and buildings where Envigo has facilities to support its RMS operations, including large domestic facilities in California, Indiana, Pennsylvania, Texas, Virginia and Wisconsin, and also in foreign countries including those in the U.K., the Netherlands, France, Spain and Israel. In addition, Envigo leases its corporate headquarters located in Indianapolis, Indiana, as well as some of its smaller operating facilities. Envigo believes its office space and facilities are suitable and adequate to support our current business needs and are appropriately utilized. Many of Envigo's leases have an option to renew, and Envigo believes that it will be able to successfully renew expiring leases on satisfactory terms.

Contractual Arrangements

Generally, Envigo's contracts are short-term in nature and based upon purchase orders submitted for specific customer requirements. Pricing is based upon Envigo's list price which is market-adjusted. In addition, with certain larger customers, Envigo has entered into long­-term supplier agreements. As part of the EGSI acquisition, Envigo entered into a five-year supplier agreement with a key strategic partner that includes minimum purchase commitments and preferred pricing (equal to best price extended to similar customers). Envigo also has a supplier agreement with another large customer that includes discounted pricing.

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Regulatory Matters

As Envigo's business operates in a number of distinct operating environments and in a variety of locations worldwide, Envigo is subject to numerous, and sometimes overlapping, regulatory environments.

The Animal Welfare Act (“AWA”) governs the care and use of certain species of animals used for research in the U.S. other than laboratory rats, mice and birds. For regulated species, the AWA and the associated animal care regulations require producers and users of regulated species to provide veterinary care and to utilize specific husbandry practices such as cage size, shipping conditions, sanitation and environmental enrichment to assure the welfare of these animals. Separately, facilities using live vertebrate animals in research funded by the U.S. Public Health Service (“PHS”) must also adhere to the PHS Policy on Humane Care and Use of Laboratory Animals and follow the Guide for the Care and Use of Laboratory Animals produced by the Institute for Laboratory Animal Research.

Envigo is subject to licensing and registration requirement standards set by the United States Department of Agriculture (“USDA”) and similar agencies in other countries for the care and use of regulated species. Envigo's operations in the Europe follow the standards as stipulated by the Directive 2010/63/EU on the Protection of Animals Used for Scientific Purposes. Stipulations within that Directive were transposed into national legislations within the EU (including the U.K.) in 2013. Envigo is regularly consulted and inspected by the relevant national authorities in order to ensure continued compliance with the legal requirements in each nation in which it operates.

Envigo's import and export of animals and its operations in foreign countries are subject to international agreements and conventions, as well as a variety of national, regional, and local laws and regulations, which establish the standards for the humane treatment, care, handling and transport of animals by dealers and research facilities.

In addition, the specific activities of some of Envigo's businesses require Envigo to hold specialized licenses for the conduct, manufacture, and distribution of particular products and services.

All of Envigo's sites are subject to licensing and regulation under international treaties and conventions, including national, regional and local laws relating to:

To assure these compliance obligations, Envigo has established quality assurance procedures and functions. The quality assurance function operates independently from those individuals that manage RMS production.

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Intellectual Property

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Envigo maintains and protects trade secrets, know-how and other proprietary information regarding many of its business processes and related systems. Although Envigo's intellectual property rights are valuable to its success, Envigo believes that such factors as the technical expertise, proprietary know-how, ability and experience of its staff are more important. Where Envigo consider it appropriate, steps are taken to protect its know-how through confidentiality agreements and registration of title or use. While Envigo has certain trademarks and patents, Envigo has no patents, trademarks, licenses, franchises or concessions which are material and upon which any of its services are dependent.

COVID-19

The outbreak of COVID-19, which the World Health Organization declared in March 2020 to be a pandemic, continues to spread throughout the United States of America and the globe. Many U.S. State Governors issued temporary Executive Orders that, among other stipulations, effectively prohibited in-person work activities for many industries and businesses, having the effect of suspending or severely curtailing operations. The outbreak continued through the Summer 2020 and, after abating somewhat, had a precipitous resurgence in the Fall and Early Winter 2020/2021. During December 2020, upon completion of clinical trials, COVID-19 vaccines received approval from health governing bodies in the U.S. and Europe and a phased inoculation of populations was begun. New variants of the

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COVID-19 virus continue to emerge and one or more may prove able to partially or fully avoid the protective effect of these vaccines and could prove disruptive in the future.

Due to the world-wide impact of the COVID-19 pandemic, our operations have been impacted in many ways including:

Envigo has been able to secure NHPs from other sources in Asia to cover a large portion of NHPs typically sourced from China, but customer demand continues to outpace supply.

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Executive Officers of the Registrant

The following table provides information concerning the persons who currently serve as our executive officers. Officers are elected annually at the annual meeting of the board of directors.

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Robert W. Leasure, Jr. joined the Company as President and Chief Executive Officer on January 12, 2019. Mr. Leasure serves as the managing partner and president of LS Associates LLC (“LS”), a management and turnaround firm formed in 2002. From September 2016 until Mr. Leasure’s employment, the Company engaged LS as a financial consultant. Mr. Leasure’s experience working with management teams in areas including strategic planning and implementation, problem solving, operations, mergers and acquisitions and financial transactions, and in particular Mr. Leasure’s experience leading the Company’s turnaround and current growth, well situate him for his role as President and Chief Executive Officer and as a director.

John E. Sagartz, DVM, Ph.D., DACVP, joined the Company as part of the Company’s acquisition of Seventh Wave Laboratories on July 2, 2018. Following the acquisition, Dr. Sagartz has served as the Company’s Chief Strategy Officer and joined Inotiv’s Board of Directors to help guide strategy in order to provide broader solutions and greater scientific expertise to the Company’s clients. Dr. Sagartz began his career as a toxicologic pathologist at Searle/Monsanto

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in 1996, and held positions of increasing responsibility as section head, director, preclinical development site head, and fellow, following Monsanto’s merger with Pharmacia. After Pfizer’s acquisition of Pharmacia in 2003, Dr. Sagartz founded Seventh Wave Laboratories where he served as President and Chief Executive Officer, and Chief Strategy Officer. Dr. Sagartz is an adjunct associate professor of Comparative Medicine at St. Louis University’s College of Medicine and serves on the Board of Directors of the Missouri Biotechnology Association. He received his Bachelor of Science and Doctor of Veterinary Medicine degrees from Kansas State University and, after completing residency training in anatomic pathology, earned his Doctor of Philosophy from The Ohio State University. Dr. Sagartz has the education and experience to provide strategic insight and industry knowledge to serve as Chief Strategy Officer for the Company and serve as a director.

Beth A. Taylor joined the Company as Chief Financial Officer and Vice President of Finance on March 9, 2020. Prior to joining the Company, Ms. Taylor held financial positions of Vice President of Finance and Chief Accounting Officer, Corporate Controller and Finance Director positions at Endocyte, Inc., Author Solutions, Inc., Harlan Laboratories, Inc., Republic Airways Holdings and Rolls-Royce Corporation. Ms. Taylor started her career in audit assurance with Deloitte and received a B.S. in Accounting from Kelley School of Business, Indiana University in Bloomington, Indiana.

William D. Pitchford joined the Company as Chief Human Resources Officer on August 28, 2019. Prior to joining the Company, Mr. Pitchford held senior level positions within the human resources functions at Ford Motor Company, Rio Tinto Alcan Corporation and, most recently, at Wabash National Corporation as Senior Vice President of Human Resources. Mr. Pitchford received his undergraduate degree in Criminology & Sociology at Indiana State University, and his Master of Arts in Human Resources Management at Central Michigan University.

John Gregory Beattie joined the Company in February 2021 as the Chief Operating Officer. Prior to joining the Company, Mr. Beattie held Corporate Vice President positions at Charles River Laboratories, a contract research organization, where he led business units within all three of their segments. In these roles, Mr. Beattie was responsible for driving operational performance. Mr. Beattie holds a Bachelor of Science degree in Biology from McGill University and a Master of Science degree in Experimental Health Sciences from Université du Quebéc, and graduated from the Kellogg Management Institute program at Northwestern University.

Philip A. Downing has over 23 years of pharmaceutical experience in drug discovery, toxicology/non-clinical, and clinical research. Traditionally trained as a bioanalytical chemist, Mr. Downing joined the Company as an analytical chemist in 1997, rapidly moving into leadership positions such as Director of Analytical Services, General Manager, and Sr. Director of Preclinical, until reaching his present position as Vice President of Preclinical Services. Prior to his tenure with BASi, Mr. Downing worked at GFi Pharmaceuticals (now Covance Labs – Clinical Division) as an Analytical Scientist, and RSO designing and validating radiolabeled and non-radiolabeled assays used to support clinical ADME studies. He earned a Bachelor’s Degree in Chemistry and Biology from Indiana University and is a member of the Society of Toxicology, American College of Toxicology and the American Chemical Society.

Adrian Hardy, Ph. D. joined the Company as Executive Vice President upon the closing of the Envigo Acquisition on November 5, 2021. Dr. Hardy joined Envigo in 2002. He became Chief Executive Officer and President in July 2016 and sole director of Envigo in July 2018. Dr. Hardy initially joined Envigo in a business development role which ultimately included global responsibility for sales, corporate development and strategic marketing. Dr. Hardy was appointed Chief Operating Officer in 2014 with global responsibility for the operations of Envigo. Dr. Hardy has a background in molecular and developmental biology, with a doctorate from University College, London where he also completed his post-doctoral research. After leaving academia, Dr. Hardy spent three years working in product development for a subsidiary of Novartis and a further two years running his own business.

James Harkness joined the Company as Chief Operating Officer – Research Models & Services upon the closing of the Envigo Acquisition on November 5, 2021. Mr. Harkness joined Envigo in June 2019 as its Chief Operating Officer. Prior to joining Envigo, Mr. Harkness has over 25 years of CRO experience leading global operations, supply chain and customer facing teams in both late stage and preclinical businesses. Mr. Harkness served as the Vice President of Early Development Operations for LabCorp (previously Covance) from 2015-2018. Mr. Harkness obtained his Master of Business Administration from Ohio State University in 2010.

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Michael Garrett joined the Company as Chief Commercial Officer upon the closing of the Envigo Acquisition on November 5, 2021. Mr. Garrett served as Senior Vice President of Commercial for Envigo since June 2019, having joined the company in 2018 as Head of Service Development. Prior to joining Envigo, he was Vice President of Commercial for MPI Research, a non-clinical contract research organization. He has been in the life sciences industry for over 25 years, having held leadership positions in Sales, Marketing and Strategic Planning at BioReliance (Merck KGaA), Serologicals Corp. (Millipore), and Life Technologies. Mr. Garrett has a Masters in Experimental Pathology from the University of Washington (Seattle) and a Bachelor of Science degree from Duke University.

Mark Bibi joined the Company as General Counsel & Secretary upon the closing of the Envigo Acquisition on November 5, 2021. Mr. Bibi joined Envigo in 2002 and became Secretary and General Counsel of Envigo in August 2005. He served as Executive Vice President, Secretary and General Counsel of Unilab Corporation, a Philippine pharmaceutical company in the 1990s. Prior thereto, Mr. Bibi was affiliated with the New York City law firms, Schulte Roth & Zabel and Sullivan & Cromwell. Mr. Bibi received his Juris Doctor degree from Columbia Law School.

Investor Information

We file various reports with, or furnish them to, the Securities and Exchange Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports. These reports are available free of charge upon written request or by visiting www.inotivco.com/investors.

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ITEM 1A-RISK FACTORS

Our business is subject to many risks and uncertainties, which may affect our future financial performance or condition. If any of the events or circumstances described below occur, our business and financial performance or condition could be adversely affected, our actual results could differ materially from our expectations and the market value of our stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may adversely affect our business and financial performance.

Risks Related to the COVID-19 Pandemic

Our business, results of operations, financial condition, cash flows and stock price have and may continue to be adversely affected by pandemics, epidemics or other public health emergencies, such as the recent outbreak of COVID-19.

Our business, results of operations, financial condition, cash flows and stock price have and may continue to be adversely affected by pandemics, epidemics or other public health emergencies, such as the recent international outbreak of COVID-19. In March 2020, the World Health Organization characterized COVID-19 as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The outbreak has resulted in governments around the world implementing stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19.

Among other impacts to date, we believe the outbreak has and may continue to negatively impact demand for our products, including Culex, in-vivo sampling systems. We had clients delay or postpone some large Service segment programs in the year, and we estimated that the impact on revenue in fiscal 2020 from program delays and postponements was approximately $2.0 million. There was no significant impact from program delays and postponements in fiscal 2021. The measures the Company has and may continue to take in response to the outbreak may also impact our business. In response to the outbreak the Company applied for and was granted a Paycheck Protection Program loan (the “PPP Loan”) in the aggregate amount of $5,051,282. On July 16, 2021, $4,850,665 of our PPP Loan was forgiven. The portion of the PPP Loan that was not forgiven, and any further borrowings, may result in increased leverage and interest expense. In

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addition, the pandemic has prompted the adoption of additional safety protocols, periods of remote operation for certain of our employees and other adjustments to our business practices.

The outbreak of COVID-19 and preventive or protective actions taken by governmental authorities may continue to have a material adverse effect on our and our customers’ and suppliers’ respective operations, including with respect to the potential for business shutdowns or disruptions. The extent to which COVID-19 may continue to adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depending upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effects. Future financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition and cash flows. Even after the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression and demand for our products and services. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets which has and may continue to adversely impact our stock price and our ability to access capital markets including to refinance existing obligations. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of exacerbating many of the other risks described herein or other risks not presently known to us or that we currently deem immaterial.

Risks Related to the Industries we Serve

We depend on the pharmaceutical and biotechnology industries.

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 and to compensate us for services rendered. Accordingly, economic factors and industry trends that affect our clients in these industries also affect our business. If companies in these industries were to reduce the number or scope of research and development projects they conduct or outsource, our business could be materially adversely affected.

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

Our clients include researchers at pharmaceutical and biotechnology companies. Our ability to continue to grow and win new business depends in large part upon the ability and willingness of the pharmaceutical and biotechnology industries to continue to spend on research and development and to purchase 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, among other reasons. Our business could be adversely affected by any significant decrease in life sciences research and development expenditures by pharmaceutical and biotechnology companies. Economic factors, industry trends and global pandemics, such as COVID-19, that affect our clients in these industries also affect our business.

Risks Related to our Operations

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

Five clients accounted for approximately 20.5% of our total sales in fiscal 2021 and approximately 23.2% of our total sales in fiscal 2020. The loss of a significant amount of business from one or more of our major clients 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 or projects in any one period may not continue to be significant clients 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

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total revenue or that our business may depend on one or more large projects. 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 as projects end and new projects begin. To the extent that we are dependent on any single client, we are indirectly subject to risks related to that client, including if such risks impede the client’s ability to stay in business or otherwise to make timely payments to us.

We operate in a highly competitive industry.

The CRO services industry is highly competitive. We often compete for business not only with other CROs, but also with internal discovery and development departments within our client companies. The industry has historically been diverse with more than 1,000 CROs around the globe, ranging from small, regional niche laboratories up to global comprehensive service providers with tens of thousands of employees. 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. Offshore CROs have provided increasing competitive pressures, although we believe the pandemic has made Asian CROs a less attractive option for many western clients.

The majority of our clients’ 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:

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, and some of our contracts entitle us to a termination fee, 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.

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. Significant underpricing or cost overruns could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

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 clients requiring indemnification by the clients or coverage under the clients’ product liability insurance policies. The financial performance of our client indemnifying parties is not secured. Therefore, we bear the risk that the indemnifying party may not have the financial ability, or may otherwise fail, to fulfill its indemnification obligations or that the liability could exceed the amount of applicable client insurance, if any. In the event that we are unable to reach indemnification or insurance coverage arrangements with our clients to appropriately cover our potential losses, our insurance coverage may not adequately cover such losses. Relevant insurance coverage may also not always be available to us on acceptable terms or at all.

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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 obtaining 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.

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.

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 depends, 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. Our patents may be challenged by third parties and, if challenged, may not be held valid. In addition, technologies or products developed by us may be challenged by third parties owning relevant patent rights and, if challenged, could be found to infringe on those patent rights. The expense involved in patent litigation can be significant, even where challenges may lack merit. We also rely on unpatented proprietary technology, which subjects us to risk that others may independently develop or obtain similar products or technologies.

Risks Related to our Financial Activities

We have experienced periods of losses and financial insecurity.

Throughout our history we have experienced periods of financial losses and financial hardship. Our current efforts may not result in profitability, or if our efforts result in profits, such profits may not continue for any meaningful period of time. In order to finance our acquisition of Seventh Wave Laboratories, LLC’s and Smithers Avanza’s, Preclinical Research Service’s, HistoTox Laboratories’ and Bolder BioPATH’s businesses and the expansion of BAS Evansville’s and St. Louis’ facilities, we have significantly increased our leverage. Sustained losses may result in our inability to service our financial obligations as they come due, including the additional indebtedness we have incurred to support our growth initiatives, or to meaningfully invest in our business.

Our failure to comply with the terms of our existing credit agreement could result in an event of default that could materially adversely affect our business, financial condition and results of operations.

If there were an event of default under our existing credit agreement, all amounts outstanding under that agreement could be due and payable immediately, which may have an adverse impact on our business, financial condition and results of operations. An event of default may occur should our assets or cash flow be insufficient to fully repay borrowings under our existing credit agreement, whether paid in the ordinary course or accelerated, or if we are unable to maintain compliance with relevant obligations thereunder, including financial and other covenants. Various risks and uncertainties, including those arising as a result of COVID-19, may impact our ability to comply with our obligations

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under the existing credit agreement. Should the pandemic or other factors continue to negatively impact our business, those developments might cause us to fail to comply with the covenants under our existing credit agreement.

In connection with our acquisition of Seventh Wave Laboratories, LLC’s and Smithers Avanza’s, Preclinical Research Service’s, HistoTox Laboratories’ and Bolder BioPATH’s businesses and the expansions of our facilities in Evansville, Indiana and St. Louis, we have significantly increased our level of indebtedness, as well as our ability to incur further indebtedness under relevant lines of credit. Our ability to service this indebtedness will depend, in part, on the success of our operations and our ability to generate sufficient cash flow therefrom.

In connection with the recent restatement of our financial statements, our management has concluded that certain of our disclosure controls and procedures were not effective as of June 30, 2021 due to a material weakness in internal control over financial reporting solely related to our accounting for the tax impact of acquisitions that qualify as stock transactions for tax purposes. If we are unable to maintain an effective system of disclosure controls and procedures and internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and financial results.

Management and the Audit Committee of the Board of Directors concluded that it was appropriate to restate the Company’s previously issued unaudited interim financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on August 13, 2021, due to an error in accounting for certain tax attributes related to an acquisition completed by the Company in the third quarter of fiscal 2021. As part of such process, we identified a material weakness in our internal control over financial reporting, solely related to our accounting for the tax impact of acquisitions that qualify as stock transactions for tax purposes.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We expect to take steps to remediate the material weakness, but there is no assurance that any remediation efforts will ultimately have the intended effects.

If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

Risks Related to Regulation

Changes in government regulation or in practices relating to the pharmaceutical industry could change the demand 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 may have difficulty satisfying, or that make our services less competitive, could substantially change the demand for our services. Also, if governments increase efforts to contain drug costs and pharmaceutical and biotechnology company profits from new drugs, our clients may spend less, or slow the pace of increased spending, on research and development.

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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. Under such circumstances, we may be contractually required to repeat a study at no further cost to the client, but at substantial cost to us. That development would harm our reputation, our prospects for future work and our operating results. Furthermore, the issuance of a notice from the FDA or the USDA based on a finding of a material violation by us of good clinical practice, good laboratory practice or good manufacturing practice requirements or other applicable regulations could materially and adversely affect our business and financial performance.

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. The General Data Protection Regulation (GDPR), which became effective in May 2018, imposes heightened obligations on businesses that control and manage the personal data of E.U. citizens. These and similar 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.

Risks Related to Research and Development

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 our counterparts to remain competitive, our competitive position, and in turn our business, revenues and financial condition, would be materially and adversely affected. Many of our competitors have superior financial and human resources deployed toward research and development efforts. Our relatively constrained financial and human resources may limit our ability to effectively keep pace with relevant technological changes.

We may incur expenses on potential products that we never successfully develop or commercialize.

We have incurred and expect to continue to incur research and development and other expenses in connection with our Products business. We might never successfully develop or commercialize potential products to which we devote resources 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.

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Risks Related to Technology and Cybersecurity

We may be at risk of cyber-attacks or other security breaches that could compromise sensitive business information, undermine our ability to operate effectively and expose us to liability, which could cause our business and reputation to suffer.

Cyber-attacks or security breaches could compromise confidential client information, cause a disruption in our operations, harm our reputation and expose us to liability, which in turn could negatively impact our business and the value of our common shares. As a routine element of our business, we collect, analyze, and retain substantial amounts of data pertaining to the clinical and non-clinical studies we conduct for our clients. We also maintain other sensitive client information, information regarding intellectual property related to our Products segment and other business-critical information, including personally identifiable information of our employees. Our employees, some of whom have access to such information, have and will likely continue to receive “phishing” e-mails intended to trick recipients into surrendering their usernames and passwords. We cannot completely protect against the possibility that sensitive information may be accessed, publicly disclosed, lost or stolen, via phishing attempts or other circumstances.

Our success depends in part on the efficient and uninterrupted operation of our computer and communications systems. A cyber breach of our computer and communications systems could also impede several aspects of our business, as described below under the section “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.

We utilize cybersecurity technologies, processes and practices which are designed to protect our networks, computers, programs and data from attack, damage or unauthorized access, but they may not be effective or work as designed. Our contracts with our clients typically contain provisions that require us to keep confidential the information generated from our studies. A cyber-attack could result in a breach of those provisions or other negative outcomes, including legal claims or proceedings, investigations, potential liabilities under laws that protect the privacy of personal information, delays and other impediments to our clients’ discovery and development efforts, ransomware demands and related delays, damage to our reputation and a negative impact on our financial results and the value of our common shares.

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.

We operate large and complex computer systems that contain significant amounts of client data. 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 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 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 harm our business. Finally, long-term disruptions in our computer and communications 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.

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Risks Related to Share Ownership

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

The market price of our common shares has historically been and might continue to be volatile. Many factors may have a significant impact on the future price of our common shares, including:

Factors which may impact the price of our common shares include influences beyond our control, such as market conditions and changes in the pharmaceutical and biotechnology industries we serve. The stock market, and in particular the market for pharmaceutical and biotechnology company stocks, has experienced periods of significant price and volume fluctuations, including most recently as a result of the COVID-19 pandemic. 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 shares.

Anti-takeover provisions in our organizational documents and under Indiana law may discourage or prevent a change in control, even if a sale of us would benefit our shareholders, which could cause our stock price to decline and prevent attempts by shareholders to replace or remove our current management.

Our Second Amended and Restated Articles of Incorporation and Second Amended and Restated Bylaws contain provisions that may delay or prevent a change in control, discourage bids at a premium over the market price of our common shares, harm the market price of our common shares, and diminish the voting and other rights of the holders of our common shares. These provisions include:

Our board of directors also has the ability to adopt a shareholder rights agreement, sometimes called a “poison pill,” providing for the issuance of a new series of preferred stock to holders of common shares. In the event of a takeover attempt, this preferred stock would give rights to holders of common shares (other than the potential acquirer) to buy

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additional common shares at a discount, leading to the dilution of the potential acquirer’s stake. The board’s ability to adopt a poison pill may discourage potential takeover offers, particularly by suitors the board may view as unfavorable transaction partners.

As an Indiana corporation, we are governed by the Indiana Business Corporation Law (as amended from time to time, the “IBCL”). Under specified circumstances, certain provisions of the IBCL related to control share acquisitions, business combinations, and constituent interests may delay, prevent, or make more difficult unsolicited acquisitions or changes of control. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish Company transactions that shareholders might deem to be in their best interest.

If we are unable to maintain listing of our securities on the NASDAQ Capital Market or another reputable stock exchange, it may be more difficult for our shareholders to sell their securities.

NASDAQ requires listed issuers to comply with certain standards in order to remain listed on its exchange. If, for any reason, NASDAQ should delist our securities from trading on its exchange and we are 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 materially adversely affect our shareholders:

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.

Risks Related to our Merger and Acquisition Activities

We have and may further expand our business through acquisitions, which exposes us to various risks. Our recent acquisitions pose certain incremental risks to the Company.

We review acquisition candidates as part of our continuing business strategy. Most recently, the Company acquired the businesses as described in Note 12 to the consolidated financial statements, and subsequent to fiscal 2021 year-end, the Company completed the acquisition of Plato BioPharma, Inc. (“Plato”) and the Envigo RMS Holding Corporation (“Envigo”) acquisition by merger of a wholly owned subsidiary of the Company with and into Envigo, which will constitute a significant portion of our operations. Factors which may affect our ability to effectively pursue acquisition targets or to grow successfully through completed acquisitions, including our recent acquisitions, include:

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We have incurred significant additional indebtedness during recent periods, which may impair our ability to raise further capital or impact our ability to service our debt.

We have incurred significant additional indebtedness during recent periods, including in order to fund the cash portion of the purchase prices of our recent acquisitions, to fund the purchase price of our St. Louis facility, to make capital expenditures and to support other corporate endeavors. Our additional indebtedness may impair our ability to raise further capital, including to expand our business, pursue strategic investments, and take advantage of financing or other opportunities that we believe to be in the best interests of the Company and our shareholders. Our additional indebtedness may also impact our ability to service our debt and to comply with financial covenants and the other terms of our relevant credit arrangements, in which case our lenders might pursue available remedies up to and including terminating our credit arrangements and foreclosing on available collateral.

We may need additional capital, and any additional capital we seek may not be available in the amount or at the time we need it.

Successful execution of our growth plans will require that we have access to capital.  Our expected financing needs are based upon management’s estimates as to future revenue and expense. Our business plan and financing needs are subject to change based upon, among other factors, our ability to increase revenues and manage expenses and the timing and extent of our future capital expenditures and acquisition activity. If our estimates of our financing needs change, we may need additional capital more quickly than we expect or we may need a greater amount of capital.

In general, additional capital may be raised through the sale of common shares, preferred equity or convertible debt securities, entry into debt facilities or other third-party funding arrangements. The sale of equity and convertible debt securities may result in dilution to our shareholders and those securities may have rights senior to those of our common shares. Agreements entered into in connection with such capital raising activities could contain covenants that would restrict our operations or require us to relinquish certain rights. Additional capital may not be available on reasonable terms, or at all. If we cannot timely raise any needed funds, we may be forced to reduce our operating expenses, which could adversely affect our ability to implement our long-term strategic roadmap and grow our business.

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The Company may fail to realize anticipated strategic and financial benefits from recent acquisitions.

We may not realize all of the anticipated benefits of our recent business acquisitions. These acquisitions may not further our business strategy as we expect, we may fail to successfully integrate the acquired operations as planned or to realize the synergies and other benefits we expected from the acquisitions, we may experience unexpected adverse impacts on the acquired businesses, or we may otherwise not realize the expected return on our investments, any of which could adversely affect our business or operating results and potentially cause impairment to assets that we record as a part of the acquisitions, including intangible assets and goodwill.  We may have difficulties managing the acquired businesses or retaining key personnel of the acquired companies.  

Our operating results or financial condition also may be adversely impacted by (i) claims or liabilities related to the acquired companies’ businesses including, among others, claims from U.S. regulatory or other governmental agencies, terminated employees, current or former customers or business partners, or other third parties; (ii) pre-existing contractual relationships of the acquired companies that we would not have otherwise entered into, the termination or modification of which may be costly or disruptive to our business; (iii) unfavorable accounting treatment as a result of the acquired companies' practices; and (iv) intellectual property claims or disputes.

Certain of the companies we have acquired are not required to maintain an internal control infrastructure that would meet the standards of a public company, including the requirements of the Sarbanes-Oxley Act of 2002, and we may acquire similar companies in the future.  The costs that we may incur to implement such controls and procedures may be substantial and we could encounter unexpected delays and challenges in this implementation. In addition, we may discover significant deficiencies or material weaknesses in the quality of an acquired company's financial and disclosure controls and procedures which could result in additional costs or adversely affect our business or operating results.

Our due diligence of our recently acquired businesses may not have identified all pertinent risks, which could materially affect our business, financial condition, liquidity and results of operations.

As part of our merger and acquisition due diligence, we utilize information provided by relevant sellers. As is true with any merger and acquisition transaction, we may not be aware of all liabilities of the acquired business at the time of acquisition. Potential incremental liabilities and additional risks and uncertainties related to our recently acquired businesses not known or fully appreciated by us could negatively impact our future business, financial condition and results of operations.

Risks Factors Relating to our Business Following the Acquisition of Envigo

We may be unable to successfully integrate Envigo’s business into our business or achieve the anticipated benefits of the Envigo Acquisition.

The success of the Envigo Acquisition will depend, in part, on our ability to realize the anticipated benefits and cost savings from combining our business with Envigo’s business, and there can be no assurance that we will be able to successfully integrate or otherwise realize the anticipated benefits of the Envigo Acquisition. Difficulties in integrating the two businesses may result in us performing differently than expected, in operational challenges, or in the failure to realize anticipated expense-related efficiencies. Potential difficulties that may be encountered in the integration process include, among others:

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We may not be able to accomplish this integration process successfully.

Our results may suffer if we do not effectively manage our expanded operations following the Envigo Acquisition.

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As a result of the Envigo Acquisition, the size and scope of our business increased significantly beyond its previous size. Our future success will depend, in part, on our ability to manage this expanded business, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Envigo into our existing business in an efficient and timely manner, to combine systems and management controls and to integrate relationships with customers, vendors and business partners.

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Actions of animal rights activists may affect our business.

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Envigo's RMS business provides animal research models to our customers. Such activities are required for the registration of products under regulatory regimes in the United States, Europe and other countries. Many CROs, biopharmaceutical companies and other research organizations have been targeted by animal rights activists who oppose all testing on animals, for whatever purpose, including the animal testing activities in support of safety and efficacy testing for drug development. These groups, which include groups directed at the industry and us, have publicly stated that the goal of their campaign is to stop animal testing. Acts of vandalism and other acts by animal rights activists who object to the use of animals in product development could have a material adverse effect on our business. These groups have historically targeted CROs, academic institutions and biopharmaceutical companies, but also third parties that do business with CROs, academic institutions and biopharmaceutical companies, including customers, suppliers, advisors, financial advisors, lenders and investors.

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We are subject to periodic inspections by regulatory authorities which could lead to enforcement actions if those authorities determine that our facilities or procedures do not meet applicable requirements.

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We are subject to periodic inspections by regulatory authorities, including the FDA and the USDA. As part of these inspections, the regulatory authorities seek to determine whether our facilities and operations comply with applicable laws and regulations. Adverse findings as a result of these inspections could lead to enforcement actions, including substantial fines, warning letters that require corrective action (including potential facilities improvement requirements), revocation of approvals, exclusion from future participation in government healthcare programs, criminal prosecution and even the denial of the right to conduct business. During the period from July through December 2021, one of the Envigo’s U.S. facilities was inspected on several occasions by the USDA. Following the inspection, USDA issued inspection reports with findings of non-compliance with certain USDA laws and regulations. Envigo formally appealed certain of the findings and the USDA has indicated it intends to conduct a formal investigation. The inspections and/or the investigation could lead to enforcement action resulting in penalties that could include a temporary restraining order or injunction, civil and/or criminal penalties, and/or license suspension or revocation. The imposition of any of these penalties or other restrictions on our business as a result of the inspections could adversely affect our business reputation and could have a material adverse impact on our financial condition, results of operations and stock price.

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Our principal shareholders and management own a significant percentage of our stock and will be able to exercise significant influence over matters subject to shareholder approval.

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As of December 1, 2021, our executive officers, directors and 5% shareholders beneficially owned approximately 37.0% of the outstanding shares of capital stock. In addition, as of December 1, 2021, our executive officers and directors held options to purchase an aggregate of 747,075 of our common shares at a weighted-average exercise price of $7.83 per share. Therefore, these shareholders will have the ability to influence us through this ownership position. The interests of this group of shareholders may not coincide with the interests of other shareholders.

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Sales of substantial amounts of our common shares in the public markets, or the perception that such sales could occur, could reduce the market price of our common shares.

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Sales of a substantial number of our common shares in the public market, or the perception that such sales could occur, could adversely affect the market price of our common shares. As of December 1, 2021, we had 24,266,099 common shares outstanding. Of the 24,266,099 common shares outstanding as of December 1, 2021, approximately 13,202,411 shares are available for sale in the public market.

In addition, as of December 1, 2021 there were 1,672,770 common shares subject to outstanding options. We have registered all of the common shares issuable upon the exercise of outstanding options, upon the vesting of outstanding restricted stock and upon exercise or settlement of any other equity incentives we may grant in the future under our incentive plan under the Securities Act. Accordingly, these shares may be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, in some cases, subject to volume, manner of sale and other limitations of Rule 144 and the terms of our insider trading policy.

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The resale of certain shares issued in the Envigo Acquisition to be covered by a resale registration statement could adversely affect the market price of our common shares, which result could in turn negatively affect our ability to raise additional equity capital.

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The Shareholders Agreement which we entered with certain former shareholders of Envigo in connection with the Envigo Acquisition requires us to prepare and file and use our commercially reasonable efforts to cause to become effective no later than May 4, 2022 a registration statement registering the resale of 6,890,710 of our common shares held by the shareholders who are parties to the Shareholders Agreement. The resale registration statement will permit the resale of these shares at any time and without restriction, subject to applicable lock-up provisions in the Shareholders Agreement. The sale, or availability for sale, of our common shares in the public market may adversely affect the prevailing market price of our common shares and may impair our ability to raise additional equity capital. The resale of a substantial number of our common shares in the public market could adversely affect the market price for our common shares and make it more difficult for you to sell our common shares at times and prices that you feel are appropriate. Furthermore, because there are a large number of shares registered pursuant to the resale registration statement, the selling shareholders named in such registration statement may continue to offer shares covered by the resale registration statement for a significant period of time, the precise duration of which cannot be predicted. Accordingly, the adverse market and price pressures resulting from an offering pursuant to the resale registration statement may continue for an extended period of time and continued negative pressure on the market price of our common shares could have a material adverse effect on our ability to raise additional equity capital.

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The trading price and volume of our Common Shares may be volatile following the Envigo Acquisition.

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The trading price and volume of our Common Shares may be volatile following completion of the Envigo Acquisition. The stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Common Shares. As a result, you may suffer a loss on your investment.

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The market for the Common Shares will depend on a number of conditions, most of which we cannot control, including:

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These and other factors may impair the market for the Common Shares and the ability of investors to sell shares at an attractive price. These factors also could cause the market price and demand for the Common Shares to fluctuate substantially, which may negatively affect the price and liquidity of the Common Shares. Many of these factors and conditions are beyond our control.

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Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert management’s attention and resources and harm our business, operating results and financial condition.

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General Risk Factors

The loss of 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 depends upon our ability to attract, train, manage and retain technologically qualified personnel.

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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 rely on third parties for important services.

We have historically depended on third parties to provide us with services critical to our business, including without limitation transportation services. The failure of third parties to adequately provide needed services or our determination to forgo non-critical services, could have a material adverse effect on our business.

Unfavorable general economic conditions may materially adversely affect our business.

While it is difficult for us to predict the impact of general economic conditions on our business, these conditions could reduce client demand for some of our products or services, which could cause our revenue to decline. Also, our clients, 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 timely pay us. Moreover, we rely on credit facilities to provide working capital to support our operations and regularly evaluate alternative financing sources. Changes in the commercial credit market or in the financial stability of our creditors may impact the ability of our creditors to provide additional financing. In addition, the financial condition of our credit facility providers, which is beyond our control, may adversely change. Any decrease in our access to borrowings under our credit facility 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 our business in the current manner. For these reasons, among others, if economic conditions stagnate or decline, our operating results and financial condition could be adversely affected.

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ITEM 1B-UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2-PROPERTIES

As of September 30, 2021, we operated in the following locations, all of which we or one of our wholly owned subsidiaries own, except as otherwise indicated:

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We believe that our facilities are adequate for our current operations and that suitable additional space will be available if and when needed, including to the extent necessary to expand operations. 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.

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ITEM 3-LEGAL PROCEEDINGS

We are involved from time to time in claims, lawsuits, and government proceedings relating to our operations. We may also be subject to other claims and potential claims, including those relating to product and general liability, workers’ compensation and employment-related matters. The ultimate outcome of claims, lawsuits, and proceedings cannot be predicted with certainty. However, we do not currently believe that we are party to any material pending legal proceedings.

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ITEM 4- MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5-MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

As of September 30, 2021, our common shares were traded on the NASDAQ Capital Market under the symbol “NOTV”. Prior to March 22, 2021, the common shares traded on the NASDAQ Capital Market under the symbol “BASi”.

Holders

As of December 1, 2021, there were 476 stockholders of record of our common shares. The number of record holders is based upon the actual number of holders registered on the books of the company at such date and does not include holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.

Dividends

We did not pay any cash dividends on our common shares in fiscal years 2021 or 2020 and do not anticipate paying cash dividends in the foreseeable future. Dividends paid on our Series A preferred shares in prior periods are discussed in Note 3 to the Notes to Consolidated Financial Statements.

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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

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. Please refer to page 1 of this Report for a cautionary statement regarding forward-looking information.

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

Recent Developments and Executive Summary

During recent periods, we have undertaken significant internal and external growth initiatives. Our growth initiatives include (1) acquisitions, (2) expansion of existing and acquired businesses, and (3) startup of new services. We acquired the business of Seventh Wave Laboratories, LLC, in July 2018 (the “Seventh Wave Acquisition”), acquired the toxicology business of Smithers Avanza on May 1, 2019 (the “Smithers Avanza Acquisition”), acquired the preclinical testing business of Pre-Clinical Research Services, Inc. as well as related real property, on December 1, 2019 (the “PCRS Acquisition”), acquired the substantially all of the assets of HistoTox Labs, Inc. (“HistoTox Labs”) on April 30, 2021 (the “HistoTox Acquisition”), acquired Bolder BioPATH, Inc. (“Bolder BioPATH”) on May 3, 2021 (the “Bolder Merger”), acquired certain assets related to genetic toxicology services from BioReliance in July, 2021 (the “BioReliance Acquisition”), and completed the purchase of all of the outstanding equity interests in Gateway Pharmacology Laboratories, LLC (“Gateway Laboratories”) on August 2, 2021 (the “Gateway Acquisition”). On September 21, 2021, we announced that we had entered into a merger agreement with Envigo RMS Holding Corp. (“Envigo”) and subsequently completed the acquisition of Envigo on November 5, 2021 (the “Envigo Acquisition”). We undertook an expansion of our facilities in Evansville, Indiana, which we began using for operations in March of 2020, we recently completed capital improvements to our Ft. Collins facility to facilitate growth, and in May 2021 we announced the purchase of our St. Louis facility with the build-out of an additional 15,000 square feet of wet laboratory and office space. We announced new service offerings which we are building internally and startup operations, including clinical pathology; SEND data reporting; cardiovascular safety pharmacology; genetic toxicology; biotherapeutics; and medical device histology and pathology. On April 23, 2021, we completed a public offering of our common stock and obtained funding to support these initiatives and other improvements to our laboratories, facilities and equipment in order to support future growth and enhance our scientific capabilities, client service offerings and client experiences. On September 27, 2021, we issued $140,000 principal amount of 3.25% Convertible Senior Notes due 2027 in connection with funding the cash purchase price of the Envigo acquisition. In addition, we have made other significant investments in upgrading facilities and equipment and filled critical leadership and scientific positions.  

Over the last year, we also improved our infrastructure and platform to support future growth and additional potential acquisitions. These improvements included establishing our new corporate name Inotiv, Inc., investments in our information technology platforms, building program management functions to enhance management and communication with clients and multi-site programs, further enhancing client services and improving the client experience. We believe these internal infrastructure initiatives, investments, acquisitions and recruiting efforts, combined with our existing team and the continuing development of our sales and marketing team, have led and will continue to lead to growth in revenue and the ability to improve the service offerings to our clients.

We recognize the recent investments in growth, continuing development of a strong leadership team, improving our platform, recruiting new employees, enhancing and building our scientific strength and adding services are critical to

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meeting the future expectations of our clients, employees and shareholders. We believe the actions taken and investments made in recent periods form a solid foundation upon which we can continue to build.

Significant Accomplishments during the year ended September 30, 2021

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Our financial results for fiscal 2021 were positively impacted by increases in sales and gross margins from the internal growth the Company has experienced in the Service business as well as the acquisition of substantially all of the assets of HistoTox Laboratories, and the acquisitions of Bolder BioPATH and Gateway Laboratories. During the year ended September 30, 2021, we saw an increase in operating expenses as a percentage of revenue compared to the year ended September 30, 2020 as we continued to build infrastructure for growth, which included additional headcount, recruiting and relocation expenses, expenses related to acquisition and integration costs and investments in building out new service offerings. In addition, the financial results were positively impacted by the Products segment of the business as expense reductions implemented in last half of fiscal year 2020 improved margins.

Notwithstanding the COVID-19 pandemic, we have maintained and grown our operations. As part of the “essential critical infrastructure” industry, we believe we continue to have a special responsibility to maintain business continuity and a normal work schedule to the greatest extent practicable. We are doing the important work of supporting our clients in their efforts towards drug discovery and development, including working with multiple clients, at our multiple sites, on a variety of therapy or vaccine candidates for COVID-19 and many other lifesaving medicines.

In the second fiscal quarter of 2020, our team implemented measures to promote a safe working environment and mitigate risk related to COVID-19, including allowing for work-from-home arrangements where possible, while continuing to support each other and our clients. Among other initiatives related to COVID-19, the Company applied for and accepted funds from the SBA Payroll Protection Program (“PPP”) as part of the CARES Act. The PPP loan was received in April 2020 in the amount of $5,051. The funds were used over the eight weeks following the receipt of the funds for payroll, utility and rent expenses, in step with our business continuity measures and as allowed under the PPP. The Company’s application for the forgiveness of the PPP loan in the amount of $4,851 was approved in July 2021.

We believe that the acquisitions of HistoTox Labs, Bolder BioPATH, Gateway Laboratories, Plato and Envigo, together with the availability under our New Credit Agreement, which we intend to use for future acquisitions, internal expansion initiatives and startup of new services, will drive significant long-term value for our customers and shareholders.

Business Overview

We specialize in nonclinical and analytical drug discovery and development services to the pharmaceutical, chemical, and medical device industries, and sell analytical instruments to the pharmaceutical development and contract research industries. Our mission is to focus on bringing new drugs and medical devices through the discovery and preclinical phases of development, all while increasing efficiency, improving data, and reducing the cost of taking new drugs to market. Inotiv is committed to supporting discovery and development objectives as well as helping researchers realize the full potential of their critical R&D projects, all while working together to build a healthier and safer world. Our strategy is to provide services that will generate high-quality and timely data in support of new drug and product approval or expand their use. Our clients and partners include pharmaceutical, biotechnology, biomedical device, academic and government organizations. We believe that we offer an efficient, variable-cost alternative to our clients’ internal drug and product development programs. Outsourcing development work to reduce overhead and speed product approvals through

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the U.S. Food and Drug Administration ("FDA") and other regulatory authorities is an established alternative to in-house product development efforts. We derive our revenues from sales of our research services and instruments, both of which are focused on evaluating drug and product safety and efficacy. We have been involved in the research of drug and products to treat diseases in numerous therapeutic areas for over 47 years since our formation as a corporation organized in Indiana in 1974, under the name Bioanalytical Systems, Inc. On March 18, 2021, we filed Articles of Amendment to our Second Amended and Restated Articles of Incorporation, as amended, and amended its Second Amended and Restated Bylaws, as amended, to reflect a corporate name change from Bioanalytical Systems, Inc. to Inotiv, Inc.

We support both the non-clinical and clinical development needs of researchers and clinicians for primarily small molecule drug candidates, but also provide services to biotherapeutics and device companies. We believe that our scientists have the skills in analytical instrumentation development, chemistry, computer software development, pharmacology, histology, pathology, physiology, medicine, surgery, analytical chemistry, drug metabolism, pharmacokinetics, and toxicology to make the services and products we provide increasingly valuable to our current and potential clients. Our principal clients are scientists engaged in analytical chemistry, pharmacology, drug safety evaluation, clinical trials, drug metabolism studies, pharmacokinetics and basic research from small startup biotechnology companies to some of the largest global pharmaceutical companies. We are committed to bringing scientific expertise, quality and speed to every drug discovery and development program to help our clients develop safe and effective life-changing therapies.

Developments within the industries we serve have a direct, and sometimes material, impact on our operations. Currently, many large pharmaceutical companies have major "blockbuster" drugs that are nearing the end of their patent protections. This puts significant pressure on these companies to discover, acquire or develop new drugs with large market opportunity, and to re-evaluate their cost structures and the time-to-market of their products. Contract research organizations have benefited from these developments, as the pharmaceutical industry has turned to outsourcing to both reduce fixed costs and to increase the speed of research and data development necessary for new product 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.

A significant portion of innovation in the pharmaceutical industry is now driven by smaller, venture capital funded drug discovery companies. Many of these companies are "single-molecule" entities, whose success depends on one or a few innovative compounds. While several biotech companies have reached the status of major pharmaceutical companies, the industry is still characterized by numerous smaller entities. These developmental companies generally do not have the resources to perform much of their research within their organizations and are therefore increasingly dependent on the CRO industry for both their research and for guidance in preparing their regulatory submissions. These companies have provided significant new opportunities for the CRO industry, including Inotiv. We believe that we are ideally positioned to serve these clients as they look for alternatives to the large CROs that cater primarily to the large pharmaceutical company segment of the marketplace.

We review various metrics to evaluate our financial performance, including revenue, margins and earnings. In fiscal 2021, total revenues increased to $89,605 from $60,469, a 48.2% increase from fiscal 2020. Acquired businesses contributed approximately $11,800 of the increased revenue amount, while the remainder was from organic growth, primarily in our services business. In fiscal 2020, delayed and postponed programs negatively impacted revenue by approximately $2,000. We did not experience a significant impact from program delays and postponements in fiscal 2021. Gross profit increased to $30,155 from $18,237, a 65.4% increase due primarily to improved margins after covering fixed cost. Operating expenses were higher by 68.0% in fiscal 2021 compared to the prior fiscal year. The most notable growth in operating expenses is related to our investment and focus to continue to build our infrastructure for growth, which included additional headcount, recruiting and relocation expense, transaction costs related to the HistoTox Labs, Bolder BioPATH, Gateway Laboratories, Envigo and Plato acquisitions, and investments in business development to build out new service offerings.

As of September 30, 2021, we had $156,924 of cash and cash equivalents, including restricted cash, as compared to $1,406 of cash and cash equivalents as of September 30, 2020. The increase in cash is primarily due to net proceeds received in connection with the convertible senior notes issued on September 27, 2021, which were used in the first quarter of fiscal 2022 to pay a portion of the cash consideration in the Envigo Acquisition. In fiscal 2021, we generated $10,740

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in cash from operations as compared to $1,290 in the same period in fiscal 2020. Total capital expenditures were $12,472 in fiscal 2021 primarily due to investments in the acquisition and expansion of the St. Louis facility, facility improvements at the Fort Collins location and investments in laboratory equipment to increase capacity at all locations.

As of September 30, 2021, we did not have an outstanding balance on our $5,000 general line of credit, and we had a $1,749 balance on our $3,000 capex line of credit. As described herein, we incurred indebtedness in connection with financing acquisitions and planned expansions of facilities and services. Please refer to the Liquidity and Capital Resources section herein for a description of our credit agreements.

In fiscal 2022, we expect certain trends and risks to potentially affect our business. General risks to the company are shared by the industry as well. Increased demand and decreased supply of certain critical research models affects the ability to procure these models in support of our clients’ projects. The acquisition of Envigo enhances our ability to secure access to these critical resources. We expect also to see inflationary impacts on costs of supplies and wage inflation, particularly affecting entry to mid-level positions, with a subsequent impact on pricing. We expect continued challenges in hiring staff at all levels.

For a detailed discussion of our revenue, margins, earnings and other financial results for fiscal 2021, see “Results of Operations” below.

Results of Operations

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

Fiscal 2021 Compared to Fiscal 2020

Services and Products Revenues

Revenues for the fiscal year ended September 30, 2021 increased 48.2% to $89,605 compared to $60,469 for the fiscal year ended September 30, 2020.

Our Services revenue increased 50.1% in fiscal 2021 to $85,832 compared to $57,177 for the prior fiscal year. Nonclinical services revenues increased due to internal growth year over year as well as the acquisition of substantially all

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of the assets of HistoTox Laboratories, and the acquisitions of Bolder BioPATH and Gateway Laboratories. Additionally, we had an estimated $2,000 decrease in Service revenue during fiscal 2020 due to program delays or postponements by clients as a result of the COVID-19 pandemic We did not experience significant impact from program delays and postponements in fiscal 2021. Other laboratory services revenues increased due to internal growth and external growth due to the acquisitions of Bolder BioPATH, HistoTox Labs, and Gateway Laboratories. The following table shows revenue information by Service Category for the periods indicated.

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Sales in our Products segment increased 14.6% in fiscal 2021 when compared to fiscal 2020. The increase stems primarily from increased sales of analytical instruments as these instruments are used for a variety of research markets, including COVID-19 related research applications. The increase was partially offset by decreased sales of our Culex automated in vivo sampling instruments and other instruments. The decrease is primarily due to a reduction of orders from universities as they closed and reduced purchasing due to the COVID-19 pandemic and our inability to go on site to install and service client instruments. The following table shows revenue information by Product category for the periods indicated.

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Cost of Revenue

Cost of revenue for the year ended September 30, 2021 was $59,450 or 66.3% of revenue compared to $42,232 or 69.8% of revenue for the prior fiscal year.

Cost of Services revenue as a percentage of Services revenue decreased to 66.7% in fiscal 2021 compared to 70.0% in the prior fiscal year due primarily to improved operating leverage and the greater utilization of recently expanded capacity.

Cost of Products revenue as a percentage of Products revenue in fiscal 2021 decreased to 58.0% from 67.6% in the prior fiscal year. This decrease in fiscal 2021 is mainly due to expense reductions implemented in the last half of fiscal 2020, which created improved margins on existing sales and improved margins after covering fixed cost.

Operating Expenses

Selling expenses for fiscal 2021 increased 4.3% to $3,517 from $3,373 compared to fiscal 2020. The increase in fiscal 2021 as compared to the same period in the prior year is mainly due to increased commissions due to increased sales and increased travel expenses, which have been partially offset by the reduction of non-recurring costs of nearly $190 related to the launch of the trade name “Inotiv” prior to the formal change of our corporate name in March 2021.

Research and development expenses for fiscal 2021 decreased 34.4% compared to the prior fiscal year to $405 from $617. The decrease was primarily due to lower internal development investments in product technology compared to fiscal 2020.

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Costs related to the development and initiation of new service offerings that are not revenue generating at this time are being identified as Startup costs. During fiscal year 2021, we increased our investments in software solutions and human resources to support existing internal expertise in the area of SEND data management and delivery investments in SEND reporting, safety pharmacology, clinical pathology, medical device pathology, biotherapeutics, and genetic toxicology. These expenses include, but are not limited to, employee compensation expenses, travel expenses, relocation expenses, and recruiting expenses. While certain of these costs are one-time in nature, there are certain costs (e.g. employee compensation expenses) that will be expected to recur once the new offerings are revenue generating at which time the related costs will be included in cost of services on the consolidated statements of operations. Startup costs for the year ended September 30, 2021 were $1,477 as compared to $333 for the year ended September 30, 2020. The increase reflects increased activity in connection with the development of new service offerings in the current year. Certain prior period amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

General and administrative expenses increased 78.9% to $30,375 in fiscal 2021 from $16,977 in fiscal 2020. The increase was mainly driven by transaction costs for the acquisitions related to HistoTox Labs, Bolder BioPATH, BioReliance, Gateway Laboratories, Envigo and Plato, as well as an increase in costs to build the infrastructure for growth, which included additional headcount, recruiting and relocation expense and investments in new service offerings. In addition, we announced investments being made in laboratory infrastructure and data and safety management technologies through a partnership with Centric Consulting, LLC.

Other Income (Expense)

Other income for fiscal 2021 was $13,421 primarily due to a gain of $8,362 resulting from the fair value remeasurement of the conversion feature of the convertible senior notes as described in Notes 2 and 7 to our consolidated financial statements included in response to Item 8 of this report, and a gain of $4,851 related to the PPP loan forgiveness in the year ended September 30, 2021. We did not have significant items recorded in other income for the year ended September 30, 2020.

Interest expense for fiscal 2021 increased 13.0% to $1,683 from $1,490 compared to the prior fiscal year. The increase was driven by our credit arrangements with First Internet Bank, as we entered into new financing arrangements, including as part of the acquisitions related to HistoTox Labs and Bolder BioPATH as well as the acquisition and expansion of our St. Louis Facility, which added related debt and increased interest expense. Additionally, we entered into senior convertible notes in late September that added additional expense of $88.

Income Taxes

Our effective tax rates for continuing operations for fiscal years 2021 and 2020 were (78.0%) and (3.2%), respectively. The effective tax rate for fiscal 2021 relates primarily to acquisition-related deferred tax liabilities resulting in the release of pre-existing valuation allowances and resulted in income tax benefit of $4,776 for the year ended September 30, 2021. The effective tax rate for fiscal 2020 primarily related to state income and franchise taxes.

Accrued Expenses

As part of a fiscal 2012 restructuring, we accrued for lease payments at the cease use date for our United Kingdom 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. Based on these matters, we had a $1,117 reserve for lease related costs and for legal and professional fees and other costs to remove improvements previously made to the facility. During fiscal 2021, the Company released all of the remaining reserve for lease related liabilities. At September 30, 2021 and 2020, we had $0 and $168, respectively, reserved for the remaining liability. The reserve was classified as a current liability on the Consolidated Balance Sheets for the year ended September 30, 2020.

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Liquidity and Capital Resources

Comparative Cash Flow Analysis

As of September 30, 2021, we had cash and cash equivalents, including restricted cash, of $156,924 compared to $1,406 as of September 30, 2020. In addition, as of September 30, 2021, we had $5,000 available on our general line of credit and $1,251 available on our capex line of credit. As of September 30, 2020, we had $5,000 available on our general line of credit, and $387 available on our capex line of credit.

Net cash provided by operating activities was $10,740 for the year ended September 30, 2021, compared to net cash provided by operating activities of $1,290 for the year ended September 30, 2020. Contributing factors to our cash provided by operations for fiscal 2021 were noncash charges of $6,268 for depreciation and amortization, $1,786 for stock compensation expense, $184 of finance lease interest expense, $208 for provision for doubtful accounts, $98 for decrease in inventories as well as net increases in customer advances of $14,554 as a result of increasing orders and the addition of orders from the HistoTox Labs, Bolder BioPATH and Gateway Laboratories acquisitions, a net increase of $2,619 in accounts payable, and a net increase of $5,103 in accrued expenses and other liabilities. These items were partially offset by an increase of $11,951 in accounts receivable, a gain of $8,362 on the fair value remeasurement of the convertible senior notes, a gain of $4,985 from tax benefits resulting from the release of a valuation allowance related to fiscal 2021 acquisitions, the PPP loan forgiveness of $4,851, an increase of $780 in prepaid expenses and other assets and a net change of $54 in operating leases.

Days’ sales in accounts receivable increased to 84 days at September 30, 2020 from 56 days at September 30, 2020 due to past-due receivables acquired during fiscal 2021, as well an increase in overall receivables due to price increases and increased revenues in fiscal 2021. It is not unusual to see a fluctuation in the Company’s pattern of days’ sales in accounts receivable as invoicing is based on billing milestones and may not be consistent with the timing of revenue recognition. Also, clients 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 2020 were noncash charges of $3,929 for depreciation and amortization, $540 for stock option expense, $145 of amortization of finance lease, $211 change on operating lease, $180 for provision for doubtful accounts, $395 for decrease in inventories  and a net increase in customer advances of $4,315 due to an increase in new orders as well as the addition of orders from the PCRS Acquisition. These items were partially offset by an increase of $620 in accounts receivable, an increase of $1,149 in prepaid expenses and other assets, and a decrease of $2,047 in accounts payable.

Investing activities used $54,054 for the year ended September 30, 2021 due mainly to capital expenditures of $12,472 and cash paid of $22,389, $17,530 and $1,665 for the HistoTox Labs, Bolder BioPATH and Gateway Laboratories acquisitions, respectively. The capital additions during fiscal 2021 consisted of investments in the acquisition and expansion of the St. Louis facility, facility improvements at the Fort Collins location and the investment in laboratory equipment to increase capacity at all locations. Investing activities used $10,131 in fiscal 2020 due mainly to capital expenditures of $6,200 and $3,931 cash paid for the PCRS Acquisition. The capital additions during fiscal 2020 consisted of investments in the Evansville expansion, investments in Gaithersburg capacity, upgrades in software as well as laboratory and IT equipment.

Financing activities provided $198,832 in the year ended September 30, 2021, compared to $9,641 provided during the year ended September 30, 2020. The cash provided in fiscal 2021 included gross proceeds from the issuance of the convertible senior notes of $140,036, including $18,000 of restricted cash, proceeds from the issuance of common stock of $48,971 and borrowings on long-term loans of $20,441, partially offset by payments of long-term loans of $4,153, as well as proceeds of $246 from the issuance of stock options. The PPP loan repayment of $200, finance lease payments of $286 and payment of debt issuance cost of $6,223 also contributed to the use of cash. The main sources of cash in fiscal 2020 were from borrowings on the long-term loan of $8,777, funds received from the PPP loan of $5,051 and borrowings on the Construction loan and Capex lines of credit of $1,287 and $2,906, respectively. Total long-term loan payments were $1,847 and net repayments on the Revolving Credit facility were $1,062. Finance lease payments of $319 and payment of debt issuance cost of $127 also contributed to the use of cash.

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Capital Resources

Credit Facility

Effective as of September 21, 2021, we entered into a Second Amendment to Amended and Restated Credit Agreement (the "Amendment"), which amended the Amended and Restated Credit Agreement between us and First Internet Bank of Indiana (“FIB”) as amended (the "Credit Agreement"). Pursuant to the Amendment, FIB consented to the incurrence by us of up to $150,000,000 of indebtedness pursuant to an indenture to be entered into among us, BAS Evansville, Inc. ("BAS Evansville"), as guarantor, and U.S. Bank National Association, as trustee (the "Indenture"), and to the guarantee of such indebtedness by BAS Evansville, provided that $18,000,000 of the proceeds of the issuance of notes under the Indenture was deposited in an account with the Lender and that all remaining proceeds of such issuance must be used solely for the purpose of financing the Envigo Acquisition as described in Note 16.  In addition, the Amendment amended the Credit Agreement to (i) add the notes issued under the Indenture as permitted indebtedness, (ii) exclude Subordinated Debt (as defined in the Credit Agreement) and, through the earlier of (a) a certain determination that the Envigo Acquisition shall not be consummated or (b) March 31, 2022, the indebtedness incurred pursuant to the Indenture from the calculation of the Senior Funded Debt to Adjusted EBITDA Ratio (as defined in the Amendment) and modified the financial ratio covenants to provide for the treatment of operating leases as operating leases (and not capital leases) in the calculation thereof, regardless of the requirements of FASB ASC 842 or other GAAP changes.  The Amendment includes an agreement by us to repay all of our obligations under the Indenture within 90 days following the earlier of (a) a certain determination that the Envigo Acquisition shall not be consummated or (b) March 31, 2022. We consummated the Envigo Acquisition and repaid all of our obligations under the FIB Credit Facility in November 2021 as described in Note 16.

On April 30, 2021, we entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with First Internet Bank of Indiana (“FIB”) to, among other things, secure additional debt financing in order to fund portions of the consideration for the HistoTox Labs acquisition and the Bolder merger. The Credit Agreement included eleven term loans (the “Term Loans” ), an equipment draw loan (the “Equipment Loan”), and a revolving line of credit (the “Revolving Facility”). On May 26, 2021, we and FIB entered into an amendment to the Credit Agreement to, among other things, provide a new term loan facility to finance the acquisition and refurbishment of our St. Louis facility, which we had previously leased. The material terms of each of the loans under the Credit Agreement, as amended, are described in Note 7 to our Consolidated Financial Statements included in response to Item 8 of this Report.

Included in the Credit Agreement is a requirement that we maintain certain financial covenants, including maintaining a senior funded debt to adjusted EBITDA ratio (as defined in the Credit Agreement) of not greater than (i) 5.25 to 1.00 as of the date of the Credit Agreement and as of June 30, 2021, (ii) 4.75 to 1.00 as of September 30, 2021, (iii) 4.50 to 1.00 as of December 31, 2021, (iv) 4.25 to 1.00 as of March 31, 2022, (v) 4.00 to 1.00 as of June 30, 2022, and (vi) 3.50 to 1.00 as of September 30, 2022 and as of each fiscal quarter end thereafter.

Also included in the Credit Agreement is a requirement that we maintain a fixed charge coverage ratio (as defined in the Credit Agreement) of not less than (i) 1.20 to 1.00, commencing as of September 30, 2021, and continuing as of each fiscal quarter end thereafter up to and including June 30, 2022, and (ii) 1.25 to 1.00 as of September 30, 2022 and as of each fiscal quarter end thereafter.

Upon an event of default, which includes certain customary events such as, among other things, a failure to make required payments when due, a failure to comply with covenants, certain bankruptcy and insolvency events, and defaults under other material indebtedness, FIB may cease advancing funds, increase the interest rate on outstanding balances, accelerate amounts outstanding, terminate the agreement and foreclose on all collateral.

The obligations of us under the Credit Agreement are secured by all of our assets and are guaranteed by each of our subsidiaries and secured by the assets thereof. We have also obtained a life insurance policy in an amount not less than $5,000 for our President and Chief Executive Officer and provided FIB an assignment of such life insurance policy as collateral.

Acquisition-related Debt

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In addition to the indebtedness under the Credit Agreement, certain of our subsidiaries have issued unsecured notes as partial payment of the purchase prices of certain acquisitions as described herein. Each of these notes is subordinated to the indebtedness under the Credit Agreement. Each of these notes described in Note 7 to our Consolidated Financial Statements included in response to Item 8 of this Report.

PPP Loan

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On April 23, 2020, we were granted a loan (the “Loan”) from Huntington National Bank in the aggregate amount of $5,051, pursuant to the Paycheck Protection Program (PPP) under Division A, Title I of the CARES Act, which was enacted March 27, 2020. The terms of the PPP Loan called for repayment of the principal and accrued interest under the Loan in eighteen installments of $283 beginning on November 16, 2020 and continuing monthly until the final payment was due on April 16, 2022. We applied for forgiveness of the loan in the amount of $4,851, and on July 16, 2021, received notice from Huntington Bank that the SBA had approved the application for forgiveness of the PPP Loan in the full amount requested. We recorded a gain on the extinguishment of debt in the amount of $4,851 included in other income in the consolidated statements of operations for the year ended September 30, 2021.

Convertible Senior Notes

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On September 27, 2021, we issued $140,000 principal amount of our 3.25% Convertible Senior Notes due 2027. The Notes were issued pursuant to, and are governed by, an indenture, dated as of September 27, 2021, among us, the guarantor named therein and U.S. Bank National Association, as trustee. Pursuant to the purchase agreement between us and the initial purchaser of the Notes, we granted the initial purchaser an option to purchase, for settlement within a period of 13 days from, and including, the date the Notes are first issued, up to an additional $15,000 principal amount of Notes. The Notes issued on September 27, 2021 include $15,000 principal amount of Notes issued pursuant to the full exercise by the initial purchaser of such option. We used the net proceeds from the offering of Notes, together with borrowings under a new senior secured term loan facility, to fund the cash purchase price of the Envigo Acquisition and related fees and expenses. The material terms of the convertible senior notes are described in Note 7 to our Consolidated Financial Statements included in response to Item 8 of this Report.

Lease

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On January 28, 2015, we entered into a lease agreement with Cook Biotech, Inc. The lease agreement has and will provide us 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.

Our sources of liquidity for fiscal 2022 are expected to consist primarily of cash generated from operations, cash on-hand, and additional borrowings available under our New Credit Agreement. Research services are capital intensive. The investment in equipment, facilities and human capital to serve our markets is substantial and continuing. 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 and to obtain additional capital if and as needed through financial transactions is critical to our success. Sustained growth will require additional investment in future periods. Positive cash flow and access to capital will be important to our ability to make such investments. Management believes that the resources described above will be sufficient to fund operations, planned capital expenditures and working capital requirements over the next twelve months.

Inflation

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

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Critical Accounting Policies and Significant Judgments and Estimates

"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

In accordance with Accounting Standards Codification (“ASC”) 606, we disaggregate our revenue from clients into three revenue streams, service revenue, product revenue and royalties. At contract inception we assess the services promised in the contract with the clients to identify performance obligations in the arrangements.

Service revenue

We enter into contracts with clients to provide drug discovery and development services with payments based on mainly fixed-fee arrangements.  We also offer archive storage services to our clients.

Our fixed fee arrangements may involve nonclinical research services (toxicology, pathology, pharmacology), bioanalytical, and pharmaceutical method development and validation, and the analysis of bioanalytical and pharmaceutical samples. For bioanalytical and pharmaceutical method validation services and nonclinical research services, revenue is recognized over time using the input method based on the ratio of direct costs incurred to total estimated direct costs. For contracts that involve in-life study conduct, method development or the analysis of bioanalytical and pharmaceutical samples, revenue is recognized over time when samples are analyzed or when services are performed. We generally bill for services on a milestone basis. These contracts represent a single performance obligation and due to our right to payment for work performed, revenue is recognized over time. Research services contract fees received upon acceptance are deferred until earned and classified within customer advances on the consolidated balance sheets. Unbilled revenues represent revenues earned under contracts in advance of billings.

Archive services provide climate controlled archiving for client’s data and samples. The archive revenue is recognized over time, generally when the service is provided. These arrangements include one performance obligation. Amounts related to future archiving or prepaid archiving contracts for clients where archiving fees are billed in advance are accounted for as deferred revenue and recognized ratably over the period the applicable archive service is performed.

Product revenue

Our products can be sold to multiple clients and have alternative use. Both the transaction sales price and shipping terms are agreed upon in the client order. For these products, all revenue is recognized at a point in time, generally when title of the product and control is transferred to the client based upon shipping terms. These arrangements typically include only one performance obligation. Certain products have maintenance agreements available for clients to purchase. These are typically billed in advance and are accounted for as deferred revenue, are recognized ratably over the applicable maintenance period and are included in customer advances on the consolidated balance sheet.

Royalty revenue

We have an agreement with Teva Pharmaceuticals (formerly Biocraft Laboratories, Inc,) which manufactures and markets pharmaceutical products. We receive royalties in accordance with sales of certain pharmaceuticals that Teva manufactures and sells. The royalties are received on a quarterly basis and the revenue is recognized over the quarter. Royalty revenue is included in service revenue on the consolidated statements of operations. Total royalty revenue recognized was $377 and $641 in the years ended September 30, 2021 and 2020, respectively.

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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. At September 30, 2021 and 2020, respectively, the remaining recorded goodwill was $51,927 and $4,368. The increase is primarily attributable to the HistoTox Labs Acquisition and the Bolder Merger as described in Note 12 to our Consolidated Financial Statements included in response to Item 8 of this Report.

We review goodwill for impairment on an annual basis in accordance with ASC 350, Intangibles- Goodwill and Other. In evaluating the goodwill, we must make assumptions regarding the discounted future cash flows of the reporting unit with goodwill. If the discounted cash flows are less than the carrying value, we then determine if an impairment loss is recognized by evaluating the fair value of the goodwill. We utilize fair value techniques accepted by ASC 820, which include the income, market and cost approach. If the fair value of the goodwill is less than the carrying amount, we recognize an impairment loss. 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 risks.

We had one reporting unit with goodwill at September 30, 2021 which was our Services business, which is included in our Services operating segment, based on the discrete financial information available which is reviewed by management. An annual goodwill impairment test was performed for the Services reporting unit at September 30, 2021 and there was no indication of impairment. There have been no significant events since the timing of our impairment tests that would have triggered additional impairment testing after fiscal year-end.

At September 30, 2021, the intangible assets subject to amortization totaled $24,233 as compared to $4,261 at September 30, 2020. The increase in intangible assets relates to the HistoTox Labs, Bolder BioPATH, BioReliance and Gateway Laboratories acquisitions as described in Note 12 to our Consolidated Financial Statements included in response to Item 8 of this Report.

Leases

We have various operating and finance leases for facilities and equipment. Facilities leases provide office, laboratory, warehouse, or land, the company uses to conduct its operations. Facilities leases range in duration from two to ten years, with either renewal options for additional terms as the initial lease term expires, or purchase options. Facilities leases are considered as either operating or financing leases.

Equipment leases provide for office equipment, laboratory equipment or services the company uses to conduct its operations. Equipment leases range in duration from 30 to 60 months, with either subsequent annual renewals, additional terms as the initial lease term expires, or purchase options.

We record a right-of-use (“ROU”) asset and lease liability for substantially all leases for which we are a lessee, in accordance with ASU 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognizes lease expense for the leases on a straight-line basis over the lease term. At inception of a contract, we consider all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not

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the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.

Our significant accounting policies, including new accounting pronouncements, are described in more detail in Note 2 of the Notes to Consolidated Financial Statements included in response to Item 8 of this Report.

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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

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INOTIV, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

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

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INOTIV, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

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

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INOTIV, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except number of shares)

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

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INOTIV, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

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