0001144204-12-062176.txt : 20121114 0001144204-12-062176.hdr.sgml : 20121114 20121114125155 ACCESSION NUMBER: 0001144204-12-062176 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20120930 FILED AS OF DATE: 20121114 DATE AS OF CHANGE: 20121114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Innolog Holdings Corp. CENTRAL INDEX KEY: 0001389115 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 680482472 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-140633 FILM NUMBER: 121202635 BUSINESS ADDRESS: STREET 1: 4000 LEGATO ROAD STREET 2: SUITE 830 CITY: FAIRFAX, STATE: VA ZIP: 22033 BUSINESS PHONE: 310 998 8909 MAIL ADDRESS: STREET 1: 4000 LEGATO ROAD STREET 2: SUITE 830 CITY: FAIRFAX, STATE: VA ZIP: 22033 FORMER COMPANY: FORMER CONFORMED NAME: uKARMA CORP DATE OF NAME CHANGE: 20070206 10-Q 1 v326485_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012 or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 333-140633

INNOLOG HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

Nevada

68-0482472

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification Number)

4000 Legato Road, Suite 830, Fairfax, Virginia 22033

(703) 766-1412

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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files. x Yes ¨ No The registrant is not yet subject to this requirement.

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company þ

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

¨ Yes þ No

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

16,299,583 shares of common stock, $0.001 par value, outstanding on November 9, 2012.

INNOLOG HOLDINGS CORPORATION

REPORT ON FORM 10-Q

QUARTER ENDED September 30, 2012

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		Page Number

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets – September 30, 2012 and December 31, 2011		3

Condensed Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2012 and 2011		4

Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2012 and 2011		5

Notes to Condensed Consolidated Financial Statements		7

Forward-Looking Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures About Market Risk		26

Item 4. Controls and Procedures		26

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		27

Item 1A. Risk Factors		27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		27

Item 3. Defaults Upon Senior Securities		27

Item 4. Mine Safety Disclosures		27

Item 5. Other Information		27

Item 6. Exhibits		28

Signatures		30

PART I – FINANCIAL INFORMATION

Item 1: Financial Statements.

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2012			December 31, 2011
	(Unaudited)
ASSETS
Current Assets
Cash	$	40,160		$	-
Accounts receivable, net		482,811			418,617
Prepaid expenses and other current assets		1,338			11,062
Total current assets		524,309			429,679

Restricted Cash		165,000			-
Property and equipment, net		24,938			20,343
Other assets		111,663			64,965
Total Assets	$	825,910		$	514,987

LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities
Cash overdraft	$	-		$	97,100
Line of credit, bank		-			497,570
Accounts payable		2,853,735			2,525,149
Accrued salaries and benefits		3,504,464			3,128,947
Accrued interest		888,286			769,163
Other accrued liabilities		1,774,714			1,240,398
Deferred rent		24,495			24,495
Notes payable, others		718,500			897,000
Notes payable, affiliates		1,008,197			2,500,801
Total current liabilities		10,772,391			11,680,623

Long Term Liabilities
Note Payable, LT Affiliates		2,000,000			-
Convertible Notes Payable, LT Affiliates net of Debt Discount of $1,584,570 as of September 30, 2012		165,430			-
Total Long Term Liabilities		2,165,430			-

COMMITMENTS AND CONTINGENCIES
		-			-
Stockholders' Deficiency
Common stock, $0.001 par value, 200,000,000 shares authorized; 15,999,538 and 15,129,973 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		16,000			15,130
Preferred stock, $0.001 par value; 50,000,000 shares authorized; Series A Convertible: 38,000,000 shares designated; 37,194,758 and 36,894,758 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively		37,195			36,895
Series B Convertible: 7,800,000 shares designated: 0 shares issued and outstanding at September 30, 2012 and December 31, 2011		-			-
Additional paid in capital		3,274,103			1,050,713
Accumulated deficit		(15,439,209	)		(12,268,374	)
Total Stockholders' Deficiency		(12,111,911	)		(11,165,636	)

Total Liabilities and Stockholders' Deficiency	$	825,910		$	514,987

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

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the three months			For the three months			For the nine months			For the nine months
	ended September 30, 2012			ended September 30, 2011			ended September 30, 2012			ended September 30, 2011


Revenues	$	1,555,467		$	1,139,166		$	4,069,869		$	3,731,666

Operating expenses
Direct costs		956,093			561,119			2,429,065			1,768,817
Operating expenses		905,670			1,269,695			2,906,063			3,646,129
Bad debt expense, affiliate		-			-			-			27,000
Total operating expenses		1,1861,763			1,830,814			5,335,128			5,441,946

Loss from operations		(306,296	)		(691,648	)		(1,265,259	)		(1,710,280	)

Other Income (Expenses)
Amortization of debt discount		(85,429	)		-			(124,010	)		-
Gain on debt extinguishment		-			-			42,460			-
Legal settlement		-			-			-			586,510
Other income		3			-			149			-
Interest expense		(612,652	)		(401,830	)		(1,824,175	)		(1,056,082	)
Total other income (expenses)		(698,078	)		(401,830	)		(1,905,576	)		(469,572	)

Loss before income tax provision		(1,004,374	)		(1,093,478	)		(3,170,835	)		(2,179,852	)

Income tax provision		-			-			-			-

Net Loss	$	(1,004,374	)	$	(1,093,478	)	$	(3,170,835	)	$	(2,179,852	)


Loss per share - basic and diluted	$	(0.06	)	$	(0.08	)	$	(0.20	)	$	(0.15	)

Weighted average number of shares		15,999,538			14,307,629			15,477,817			14,307,629

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

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

	For the nine			For the nine
	months ended			months ended
	September 30, 2012			September 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,170,835	)	$	(2,179,852	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		9,171			1,435
Stock based compensation		452,981			153,400
Amortization of debt discount		124,010			-
Gain on legal settlement		(42,460	)		-
Accrued loss on contracts		-			(47,782	)
Changes in operating assets and liabilities:
Accounts receivable		(64,194	)		380,790
Prepaid expenses and other assets		(39,024	)		(34,445	)
Deferred Rent		-			(8,763	)
Accounts payable and accrued expenses		1,463,002			1,032,124

Net cash used in operating activities		(1,267,349	)		(703,093	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchased		(11,717	)		(1,328	)

Net cash used in investing activities		(11,717	)		(1,328	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft		(97,100	)		54,826
Restricted cash		(165,000	)		-
Borrowings on note payable, others		1,005,000			1,082,500
Repayments on note payable, others		(1,183,500	)		(677,905	)
Borrowings on note payable, affiliate/related party		2,890,029			764,000
Repayments on note payable, affiliate/related party		(632,633	)		(519,000	)
Repayment of LOC		(497,570	)		-
Net cash provided by financing activities		1,319,226			704,421


NET CHANGE IN CASH		40,160			-

CASH - BEGINNING OF PERIOD		-			-

CASH - END OF PERIOD	$	40,160		$	-

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	693,885		$	757,625

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

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(UNAUDITED)

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the nine months ended September 30, 2012, the Company recorded $1,708,581 of beneficial conversion feature that is related to convertible notes.

During the nine months ended September 30, 2012, the Company issued 869,565 shares of common stock for accrual valued at $60,000.

During the nine months ended September 30, 2012, the Company issued 300,000 Series A Convertible Preferred Stock for accrual valued at $3,000.

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

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011

Note 1: Organization and Nature of Business and Basis of Presentation

Organization and Nature of Business

Innolog Holdings Corporation (“Holdings” or “Innolog”) was formed as a holding company on March 23, 2009 for the purpose of acquiring companies that provide services primarily to federal government entities. Its wholly owned subsidiaries are Innolog Group Corporation and Innovative Logistics Techniques, Inc. (“Innovative”). Holdings was previously a wholly owned subsidiary of Galen Capital Corporation (“Galen”). In June 2010, Holdings was spun out and the stockholders of Galen became the stockholders of Holdings.

Innovative Logistics Techniques, Inc., a Virginia corporation, formed in March 1989, is a solutions oriented organization providing supply chain logistics and information technology solutions to clients in the public and private sector. Innovative's services and solutions are provided to a wide variety of clients, including the Department of Defense, Department of Homeland Security and civilian agencies in the federal government and state and local municipalities, as well as selected commercial organizations.

Innolog Holdings Corporation and its wholly owned subsidiary are referred to herein as the “Company.”

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Accordingly, the results from operations for the nine months period ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. The unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2011 consolidated financial statements and footnotes thereto included in the Company's SEC Form 10-K.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation

Note 2: Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial operating losses since inception, the Company has reported a net loss of $3,170,835 for the nine months ended September 30, 2012 and $2,179,852 for the nine months ended September 30, 2011. As of September 30, 2012 the Company has reported an accumulated deficit of $15,439,209, had a stockholders’ deficiency (defined as total assets minus total liabilities) of $12,111,911 and a working capital deficit (current liabilities minus current assets) of $10,248,082. There are delinquent claims and obligations, such as payroll taxes, employee income tax withholdings, employee benefit plan contributions, delinquent loans payable and accounts payable that could ultimately cause the Company to cease operations.

The Company anticipates it may not have sufficient cash flows to fund its operations over the next twelve months without the completion of additional financing. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.

The report of the Company’s independent registered public accounting firm relating to the December 31, 2011 consolidated financial statements states that there is substantial doubt about the Company’s ability to continue as a going concern.

Management believes that actions presently being taken such as continued expense reduction, the implementation of a renewed sales effort and the capital financing efforts of the Company will help to enhance the Company’s operating and financial weaknesses.

Note 3: Summary of Significant Accounting Policies

Principles of Consolidation:

The unaudited condensed consolidated financial statements include the assets, liabilities and operating results of Holdings and it’s wholly owned subsidiary since the date of the acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates:

Management uses estimates and assumptions in preparing these financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates.

Cash and cash equivalents:

For the purpose of the statements of cash flows, Company has considered all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

Reclassifications:

Certain items in prior unaudited condensed consolidated financial statements are reclassified to conform to the current presentation. These reclassifications had no effect on reported net loss.

Contract Revenue Recognition:

Revenue on cost-plus-fee contracts is recognized to the extent of costs incurred plus provisional rates for fringe, overhead and applied G&A, plus a percentage of fees earned. On fixed price service contracts, revenue is recognized using straight line over the life of the project. Revenue on time-and-materials contracts is recognized at contractual rates as hours and out of pocket expenses are incurred. Anticipated losses on contracts are recognized in the period they are first determined.

Concentration of Credit Risk:

The Company maintains its cash, which, at times may exceed federally insured limits, in bank deposit accounts with a high credit quality financial institution. The Company believes it is not exposed to any significant credit risk with regards to those accounts. Accounts receivable principally consist of amounts due from the federal government and large prime federal government contractors. Management believes associated credit risk is not significant.

Allowance for Doubtful Accounts:

The Company provides an allowance for doubtful accounts equal to the estimated collection losses that will be incurred in collection of all receivables. Estimated losses are based on historical collection experience coupled with review of the current status of existing receivables. The allowance for doubtful accounts amounted to $35,590 at September 30, 2012 and December 31, 2011.

Property and Equipment:

Property and equipment are stated at cost and depreciated by the straight-line method over estimated useful lives which are as follows:

Office furniture and equipment	3 to 7 years
Computer hardware and software	2 to 5 years

Leasehold improvements and lease acquisition costs are amortized over the shorter of the life of the applicable lease or the life of the asset. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.

Long-Lived Assets:

The Company follows Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires those long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. An impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount. If impairment is indicated, the amount of the loss to be recorded is based on an estimate of the difference between the carrying amount and the fair value of the asset. Fair value is based upon discounted estimated cash flows expected to result from the use of the asset and its eventual disposition and other valuation methods.

Goodwill:

In accordance with FASB ASC 350, “Intangibles – Goodwill and Other”, goodwill is tested for impairment at least annually. There was no impairment loss recorded for the period ended September 30, 2012.

Income Taxes:

Effective January 1, 2009, the Company has adopted the provisions of FASB ASC 740, “Income Tax” which clarifies the accounting for uncertainty in tax positions. FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not to be sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position. The adoption of FASB ASC 740 had no effect on the Company’s financial position or results of operations. At September 30, 2012, the Company has no unrecognized tax benefits.

The Company files a consolidated federal income tax return. Income taxes are accounted for using the asset and liability method under FASB ASC 740 “Income Tax”, whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities, and their respective tax basis, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized as income in the period that includes the enactment date. Estimates of the realization of deferred tax assets are based on the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

The Company applies the provisions of FASB ASC 740, which clarifies the accounting for uncertainty in tax positions. FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not to be sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position. At September 30, 2012, the Company has no unrecognized tax benefits.

Stock Based Compensation:

The Company follows Accounting Standards Codification subtopic 718-10, Compensation (ASC 718-10”) which requires that all share-based payments to both employees and non employees be recognized in the income statement based on their fair values at the grant date and recognizes expense over the requisite service period.

Debt Issuance Costs:

Debt issuance costs are capitalized and amortized over the term of the related loan.

Fair Value Measurements:

FASB ASC 820, “Fair Value Measurements and Disclosures”, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the plan has the ability to access.

Level 2: Inputs to the valuation methodology include:

quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in inactive markets;

	·	inputs other than quoted prices that are observable for the assets or liability;
	·	inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value:

The carrying values of accounts receivable, accounts payable, accrued expenses, notes payable, and the line of credit payable approximate fair value due to the short term maturities of these instruments.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Earnings (loss) per Share:

The Company follows Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to the dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes the dilutive potential of shares of common stock if their effect is anti-dilutive.

The computation of basic and diluted loss per share for the nine months ended September 30, 2012 and September 30, 2011 is equivalent since the Company reported a net loss and the effect of any common stock equivalents would be anti-dilutive.

Recent Accounting Pronouncements:

Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have a material effect on the Company's unaudited condensed consolidated financial statements.

Note 4: Major Customers

Revenues from prime contracts and subcontracts with U.S. Government agency customers in aggregate accounted for 100% of total revenues for the nine months ended September 30, 2012 and 2011.

Note 5: Accounts Receivable

Accounts receivable consisted of the following as of September 30, 2012 and December 31, 2011:

	September 30, 2012 (Unaudited)			December 31, 2011
Billed receivables	$	518,401		$	454,207
Reserve for bad debts		(35,590	)		(35,590	)
Total	$	482,811		$	418,617

Contract receivables from prime contracts and subcontracts with U.S. Government agency customers in aggregate accounted for 100% of total contract receivables at September 30, 2012 and December 31, 2011.

Note 6: Accounts Payable and Accrued Liability

Accounts payable and accrued expenses at September 30, 2012 and December 31, 2011 consisted of the following:

	September 30, 2012 (Unaudited)		December 31, 2011

Accounts payable	$	2,853,735	$	2,525,149
Accrued liabilities		1,774,714		1,240,398
Accrued interest- other		492,382		532,211
Accrued interest-related party		395,904		236,952
Accrued salaries and benefits		3,504,464		3,128,947
	$	9,021,199	$	7,663,657

Note 7: Line of Credit

On June 14, 2011, Holdings renewed a credit agreement with Eagle Bank under which it may borrow up to $500,000. Borrowings under the agreement are guaranteed by seven individuals, who are directly or indirectly related to Holdings. The borrowings were due on August 26, 2012, if not demanded earlier. Interest is payable monthly at the bank’s prime rate (as defined) plus 1%. At September 30, 2012, the interest rate was 5.25%. The outstanding balance as of September 30, 2012 and December 31, 2011 is $0 and $497,570, respectively. This line of credit was paid in full and cancelled on September 28, 2012.

Note 8: Notes Payable, Other

At September 30, 2012 and December 31, 2011, notes payable, others consisted of the following:

	September 30, 2012 (Unaudited)		December 31, 2011

FARZIN FERDOWSI	$	13,500	$	237,500
ISABELLA CHESTER		25,000		25,000
JAMES WARRING		100,000		100,000
JOHN MORRISON		20,000		20,000
ROBERT HACKER		65,500		65,500
THOMAS JACKSON		19,500		19,500
ATLAS ADVISORS, LLC		200,000		-
YG FUNDING		-		200,000
YG, BRIARWOOD, BONDI		200,000		225,000
BDR AVANTI		-		4,500
KAY B. GUMBINNER TRUST		75,000		-
Total Notes Payable- others-Current	$	718,500	$	897,000

As of September 30, 2012 and December 31, 2011, there were $718,500 and $897,000 of the notes outstanding, respectively, issued to individuals, trusts, and corporations not related to the Company. For new notes during 2011, the lenders were granted warrants to purchase 4,077,500 shares of Innolog common stock at a strike price ranging from $0.01 per share to $0.50 per share and to be issued 300,000 shares of Series A preferred stock. The value of these warrants and preferred stock was $40,994. The entire amount was charged to expense during the twelve months ended December 31, 2011. During the nine months ended September 30, 2012, the Company issued 300,000 Series A Convertible Preferred Stock valued at $3,000. In addition, for one of the notes in the amount of $100,000, the lender received 452,000 shares of Series A Convertible Preferred Stock and for other notes totaling $150,000 the lender received 500,000 registered shares of common stock from the former sole stockholder of the Company, Galen. In exchange, the Company issued 1,000,000 unregistered shares of its common stock to Galen. The value of these shares was $64,700 on the date of the loan. The entire amount was charged to expense during the twelve months ended December 31, 2011. During the nine months ended September 30, 2012 the lenders were granted warrants to purchase 6,757,000 shares of Innolog common stock at a strike price $0.01 per share and to be issued 625,000 shares of common stock. The value of these warrants and common stock was $433,459. The entire amount was charged to expense during the nine months ended September 30, 2012.

Of these loans, $543,500 and $272,000 have matured as of September 30, 2012 and December 31, 2011, respectively and are in default. Additional interest and late fees are due upon default as defined in each note. Total interest and fees incurred on these notes amounted to $496,738 and $606,936 for the nine months ended September 30, 2012 and 2011, respectively. Total interest and fees accrued on these notes amounted to $492,382 and $532,211 as of September 30, 2012 and December 31, 2011, respectively.

On August 11, 2010 Farzin Ferdowsi loaned the Company $75,000 with a maturity date of October 11, 2010. The loan is unsecured and carries a flat interest rate of $22,500. In addition, on December 12, 2011 Mr. Ferdowsi loaned the Company $200,000 with a maturity date of January 12, 2012. The loan was secured by accounts receivable, guaranteed by Ian Reynolds, a director, and carried a flat interest rate of $25,000. As of September 30, 2012 and December 31, 2011 the total outstanding balance is $13,500 and $237,500 with accrued interest of $73,355 and $57,295, respectively. The loan is in default and carries a default interest rate of 15% per annum.

On August 30, 2010 Isabella Chester loaned the Company $25,000 with a maturity date of December 6, 2010. The loan is unsecured and carried a flat interest rate of $5,000. As of September 30, 2012 and December 31, 2011 the outstanding balance is $25,000 with accrued interest of $63,266 and $40,766, respectively. The loan is in default and carries a default interest rate of 10% per month.

On July 13, 2010 James Warring loaned the Company $100,000 with a maturity date of January 13, 2011. The loan is unsecured and carried a flat interest rate of $30,000. As of September 30, 2012 and December 31, 2011 the outstanding balance is $100,000 with accrued interest of $56,055 and $44,795, respectively. The loan is in default and carries a default interest rate of 15% per annum.

On July 20, 2010 Robert Hacker loaned the Company $65,500 with a maturity date of January 20, 2011. The loan is unsecured and carried a flat interest rate of $19,650. As of September 30, 2012 and December 31, 2011 the outstanding balance is $65,500 with accrued interest of $36,716 and $29,341, respectively. The loan is in default and carries a default interest rate of 15% per annum.

On July 20, 2010 Thomas Jackson loaned the Company $34,500 with a maturity date of January 20, 2011. The loan is unsecured and carried a flat interest rate of $10,350. As of September 30, 2012 and December 31, 2011 the outstanding balance is $19,500 with accrued interest of $18,897 and $14,560, respectively. The loan is in default and carries a default interest rate of 15% per annum.

On July 21, 2010 John Morrison loaned the Company $25,000 with a maturity date of January 21, 2011. The loan is unsecured and carried a flat interest rate of $7,500. As of September 30, 2012 and December 31, 2011 the outstanding balance is $20,000 with accrued interest of $26,058 and $23,806, respectively. The loan is in default and carries a default interest rate of 15% per annum.

On July 29, 2010 BDR Avanti loaned the Company $20,000 with a maturity date of August 27, 2011. The loan is secured with accounts receivable and carried a flat interest rate of $2,000. As of September 30, 2012 and December 31, 2011 the outstanding balance is $0 and $4,500 with accrued interest of $0 and $10,802, respectively. The loan is paid in full.

On August 1, 2010 YG Funding loaned the Company $200,000 with a maturity date of September 14, 2011. The loan is secured by accounts receivable and carried a flat interest rate of $20,000. As of September 30, 2012 and December 31, 2011 the outstanding balance is $0 and $200,000 with accrued interest of $39,033 and $13,346, respectively. The principal of the loan is paid in full.

On August 8, 2011 YG Funding, Briarwood Capital, and Gary Bondi loaned the Company $225,000 with a maturity date of November 8, 2011. The loans are secured and carried a flat interest rate of $50,000. As of September 30, 2012 and December 31, 2011 the outstanding balance is $200,000 and $225,000 with accrued interest of $141,260 and $42,100, respectively. The loans are in default and carry a late fee of 10% per month and a default interest rate of 28% per annum, compounded monthly until paid in full. The loans are guaranteed by Ian Reynolds, a director. The Company was obliged to issue 1,000,000 warrants subsequently to be issued which was valued at $60,022 and charged to operations as interest expense.

On March 22, 2011 Atlas Advisors LLC entered into a line of credit in the amount of up to $200,000 with the Company with a maturity date of October 21, 2011. The loan was secured by accounts receivable and carried a flat interest rate of 10% on each draw. As of March 31, 2012 and December 31, 2011 the outstanding principal balance was $0. On March 9, 2012 the Company entered into a settlement agreement with Atlas, which reduced the remaining accrued interest and fees of $120,000 to $56,250 payable in 3 installments of $18,750 on March 15, 2012, April 15, 2012, and May 15, 2012 plus 500,000 warrants at an exercise price of $0.01 and expires on March 15, 2017. The Company has determined through a Black Scholes analysis that the fair value of the warrants was $21,290 at the time of issue (note 13); the balance of $42,460 was accounted for as gain on legal settlement for nine month ended September 30, 2012. As of September 30, 2012 all obligations had been paid in full.

On February 7, 2012 Kay M. Gumbinner Trust loaned the Company $100,000 with a maturity date of February 22, 2012. The loan was secured by accounts receivable and carried a flat interest rate of $8,000. As of March 31, 2012 the principal and accrued interest is paid in full.

On February 28, 2012 and March 2, 2012 Atlas Advisors LLC loaned the Company a total of $100,000. The loans have matured. The company has agreed to a payment of $12,000 per month in penalties and late fees. As of September 30, 2012 the outstanding balance is $100,000 with accrued interest of $12,841. The loan is guaranteed by Ian Reynolds, a director. The loan is in default and carries a default interest rate of 18% per annum.

On July 6, 2012, the Company borrowed $50,000 from the Kay M. Gumbinner Trust. The loan carried a flat fee of $4,000 and a maturity date of July 31, 2012. In addition, warrants of 100,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. This loan has been paid in full.

On July 23, 2012, the Company borrowed $55,000 from the Kay M. Gumbinner Trust. The loan carried a flat fee of $4,500 and a maturity date of August 22, 2012. In addition, warrants of 110,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. This loan has been paid in full.

On August 6, 2012, the Company borrowed $75,000 from the Kay M. Gumbinner Trust. The loan carried a flat fee of $6,500 and a maturity date of August 31, 2012. In addition, warrants of 150,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. This loan has been paid in full.

On August 21, 2012, the Company borrowed $75,000 from the Kay M. Gumbinner Trust. The loan carried a flat fee of $4,500 and a maturity date of September 14, 2012. In addition, warrants of 150,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. This loan has been paid in full.

On September 5, 2012, the Company borrowed $75,000 from the Kay M. Gumbinner Trust. The loan carried a flat fee of $4,500 and a maturity date of September 28, 2012. In addition, warrants of 150,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. This loan has been paid in full.

On September 21, 2012, the Company borrowed $75,000 from the Kay M. Gumbinner Trust. The loan carried a flat fee of $4,500 and a maturity date of October 12, 2012. In addition, warrants of 150,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. As of September 30, 2012, $75,000 is outstanding with accrued interest of $4,500.

On July 9, 2012, the Company borrowed $100,000 from Atlas Advisors. The loan carried a flat fee of $10,000 and a maturity date of July 24, 2012. A director also guaranteed this loan. This loan is paid in full.

On August 7, 2012, the Company borrowed $100,000 from Atlas Advisors. The loan carried a flat fee of $10,000 and a maturity date of August 22, 2012. In addition, warrants of 100,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. This loan is paid in full.

On August 23, 2012, the Company borrowed $100,000 from Atlas Advisors. The loan carried a flat fee of $15,000 and a maturity date of September 14, 2012. In addition, warrants of 200,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. The loan is paid in full.

On September 21, 2012, the Company borrowed $100,000 from Atlas Advisors. The loan carried a flat fee of $10,000 and a maturity date of October 14, 2012. In addition, warrants of 100,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan. As of September 30, 2012, $100,000 is outstanding with accrued interest of $10,000.

Note 9: Related Party Transactions

Notes Payable, affiliates:

At September 30, 2012 and December 31, 2011, notes payable, affiliates consisted of the following:

	September 30, 2012 (Unaudited)			December 31, 2011
IAN REYNOLDS	$	52,600		$	87,100
HARRY JACOBSON		190,000			190,000
ERIC WINKLER		381,250			375,000
GALEN CAPITAL GROUP LLC		70,000			70,000
JACQUE BARLOW		-			25,000
BRUCE RIDDLE		25,000			25,000
VERLE HAMMOND		224,347			229,317
MICHAEL KANE		65,000			-
WD, MB, BR, MK, SM, HJ, IR		2,000,000			1,499,384
Total notes payable- Affiliates	$	3,008,197		$	2,500,801
Less: Short term portion		(1,008,197	)		(2,500,801	)
Total notes payable- Affiliates – long term	$	2,000,000		$	-

As of September 30, 2012 and December 31, 2011, $3,008,197 and $2,500,801 were outstanding, respectively, on the notes payable to related parties. In 2011, these parties were granted warrants to purchase 5,655,000 shares of Innolog common stock. The strike price to purchase the common stock ranges from $0.01 to $0.50 per share with a 5-year expiration date. The fair value of these warrants amounted to $46,180 and was amortized to interest expense during the twelve months ended December 31, 2011. Of these notes, $768,197 and $451,417 were in default as of September 30, 2012 and December 31, 2011, respectively. Total interest and fees incurred on these notes amounted to $255,548 and $180,467 during the nine months ended September 30, 2012 and 2011. Total interest and fees accrued on these notes amounted $360,502 and $236,952 as of September 30, 2012 and December 31, 2011, respectively.

On August 4, 2011, Ian Reynolds, a director, entered into a $200,000 unsecured line of credit with the Company. Each advance under the line of credit had a due date of 30 days. Interest was a 10% flat rate of the principal of each advance. The line of credit matured as of December 31, 2011. As of September 30, 2012 and December 31, 2011 the outstanding principal was $52,600 and $87,100. Accrued interest and fees totaled $46,304 at September 30, 2012 and $54,996 at December 31, 2011. The Company is in default and default rate of interest is 15% per annum.

On February 10, 2011, Harry R. Jacobson, a holder of more than 5% of common stock, loaned the Company a total of $150,000. At least 50% of the loan must be repaid by October 31, 2011 with a final maturity of October 31, 2012. As of September 30, 2012 and December 31, 2011, $150,000 remained outstanding. The unsecured note carried a flat interest rate of $15,000. As of September 30, 2012 and December 31, 2011the accrued interest is $15,000.

On March 21, 2011, Harry R. Jacobson, a holder of more than 5% of our common stock, renewed a loan to the Company totaling $50,000. The unsecured note carried a flat interest rate of $10,000 and was to be paid back in monthly installments of $10,000 beginning April 21, 2011 with final payment due on September 21, 2011. The outstanding balance of the loan as of September 30, 2012 and December 31, 2011 was $40,000. As of September 30, 2012 and December 31, 2011the accrued interest is $14,623. The loan has matured and is in default but per the note no late fees or default interest is due.

On March 21, 2011, the Company assumed an unsecured loan from Erich Winkler, a director, in the amount of $325,000. The interest rate on the loan was a flat fee of $32,500 and the loan matured on March 21, 2012. As of September 30, 2012 and December 31, 2011 the outstanding balance was $325,000 with accrued interest of $60,931 and $32,500, respectively. The loan has matured and is in default and carries default rate of interest of 18% per annum.

On October 19, 2011, December 7, 2011 and December 21, 2011, Erich Winkler, a director, loaned the Company additional funds totaling $75,000. As of December 31, 2011, $25,000 in principal amount of these notes has been repaid leaving a remaining balance due of $50,000 and interest in the amount of $5,000 has accrued. As of September 30, 2012 the outstanding balance is $25,000 with accrued interest of $4,265.

On February 13, 2012 and February 22, 2012, Erich Winkler, a director, loaned the Company additional funds totaling $50,000. As of September 30, 2012, the outstanding balance is $31,250 and interest in the amount of $4,401 has accrued. These loans mature on April 29, 2012 and May 7, 2012, respectively and are now in default and carries a default interest rate of 18% per annum.

On June 21, 2011, Galen Capital, a holder of more than 5% of our common stock, loaned the Company a total of $70,000. As consideration for these loans, a fee of $7,000 was expensed. As of September 30, 2012 this unsecured loan has an outstanding balance of $70,000 and has matured and the Company is in default. The loan is accruing interest at 28% per annum and a late fee of 10% of the outstanding balance each month. Total accrued interest and fees amount to $128,412 and $50,699 at September 30, 2012 and December 31, 2011, respectively.

On August 9, 2011 and September 23, 2011, Jacque Barlow, an employee of the Company, loaned the Company a total of $50,000. As of September 30, 2012, all principal and interest has been paid in full.

On October 18, 2011 and December 21, 2011, Bruce Riddle, a director, loaned the Company a total of $50,000. As of September 30, 2012 and December 31, 2011, $0 and $25,000 in principal amount of these notes is outstanding. Interest in the amount of $8,314 and $5,000 has accrued at September 30, 2012 and December 31, 2011, respectively. The principal amount of the loan has been paid in full.

On September 28, 2012, Bruce Riddle, a director, loaned the Company $25,000. As of September 30, 2012, $25,000 in principal amount is outstanding. Interest in the amount of $2,500 has accrued at September 30, 2012. The principal is due on October 28, 2012 and November 28, 2012 in two installments of $12,500 each.

On September 28, 2012, Michael Kane, a director and officer of the company, loaned the Company $65,000. As of September 30, 2012, $65,000 in principal amount is outstanding. Interest was in the form of 132,000 warrants. The principal payments of $15,000 on or before October 8, 2012, $25,000 by November 8, 2012 and $25,000 by December 8, 2012 are due.

Since early 2009 Verle Hammond, a former director and former officer, loaned the Company funds at various dates. As of September 30, 2012 and December 31, 2011, the outstanding balance was $224,347 and $229,317, respectively. Interest in the amount of $67,468 and $41,835 has accrued as of September 30, 2012 and December 31, 2011, respectively. The loans have matured and are in default. The default rate of interest is 15% per annum.

Holdings and Innovative (the “Borrowers”) have entered into an agreement (the “Loan Agreement”) with seven individuals (the “Lenders”) who are directly or indirectly related to Holdings, under which the Borrowers may borrow up to $2,000,000. The total borrowings as of September 30, 2012 and December 31, 2011 amounted to $2,000,000 and $1,499,384, respectively, collateralized by substantially all assets of the Borrowers and guaranteed by Galen. Repayment of the loan is due a on May 31, 2017.. In order to make the loan to the Borrowers, the Lenders borrowed $1,000,000 from Eagle Bank and $1,000,000 from Reliant Bank. The promissory note to Eagle Bank has a maturity date of August 26, 2013 and interest is payable monthly at the bank’s prime rate (as defined) plus 1% with a minimum rate of 7.5%. The promissory note to Reliant Bank has a maturity date of March 28, 2014 and interest is payable monthly at fixed rate of 7.0%. In addition, the Reliant Bank loan is secured by a $250,000 deposit, of which $165,000 was deposited by the Company. Interest is directly paid by the Company to the banks on a monthly basis.

Convertible Notes Payable Long Term, affiliates:

At September 30, 2012 and December 31, 2011, notes payable long term, affiliates consisted of the following:

	September 30, 2012 (Unaudited)			December 31, 2011
Glenn Hill Investments, LLC	$	1,750,000			-
Less: Unamortized debt discount		(1,584,570	)
Total Convertible notes payable long term- affiliates, net of debt discount	$	165,430		$	-

On March 31, 2012, March 21, 2012, March 29, 2012, April 2, 2012, April 10, 2012, April 12, 2012, and April 16, 2012 Glen Hill Investments, LLC an affiliate of a holder of more than 5% of our common stock, loaned the Company $300,000, $200,000, $300,000, $300,000, $100,000, $100,000, and $400,000 respectively. The unsecured loans had a maturity date of May 31, 2012 and carry a 6% per annum interest rate.

On May 21, 2012 the Company entered into a Convertible Notes Purchase Agreement for up to $6,000,000 collateralized by substantially all assets of the Borrowers (“Holdings and Innovative”) with a maturity date of May 31, 2017 and a 6% per annum rate of interest. The interest accrues and is payable at maturity. As of September 30, 2012 the accrued interest is $38,260. The convertible promissory notes plus accrued interest under the Note Purchase Agreement are convertible into a Series B Convertible Preferred Stock on a dollar for dollar basis. The Series B has a liquidation preference and is convertible into common shares at a conversion price of $0.076 per share. The investors have a first lien position on the assets of the Company on a pari passu basis with the holders of other affiliated debt. Glen Hill Investments, LLC rolled its short-term loans above into this agreement. In addition, the Glen Hill Investments, LLC note is secured by a substantial portion of the directors of the Company stock holdings. Glen Hill Investments, LLC received 8,750,000 warrants for the purchase of the Company common stock at an exercise price of $.069 per share with an expiration date of May 31, 2017.

In accordance with Accounting Standards Codification 470-20-65, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (“ASC 470-20-65”), the Company recognized an imbedded beneficial conversion feature present in the notes. The Company recognized a debt discount of $1,360,869, which was equal to the intrinsic value of the imbedded beneficial conversion feature. The Company also recorded a net of a deferred debt discount of $347,711 based on the relative fair value of the warrants under the Black-Scholes pricing model based on the following assumptions: (1) risk free interest rate of 0.72%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of the Company common stock of 74.85%; and (4) an expected life of the warrants of 5 years. Total debt discount of $1,708,581 is attributed to the beneficial conversion feature were recognized to additional paid in capital and a discount against the Note. The debt discount is being amortized over the Notes maturity period (five years) as interest expense. During the three and nine months ended September 30, 2012, the Company recorded amortization of the debt discount relating to these notes of $85,429 and $124,010, respectively.

Consulting Agreement:

In 2011, the Company entered into a verbal agreement with a greater than 5% shareholder for advisory services. On July 11, 2011 the shareholder was granted warrants for 10,000,000 common shares at a strike price of $0.06 per share with an expiration date of five years. The fair value of $18,700 on this warrants were charged to expenses during the year 2011.

Legal Fees:

During the nine months ended September 30, 2012 and September 30, 2011, the Company incurred legal fees in the amount of $110,840 and $195,000 respectively on behalf of its executive officer in defense of an investigation by a governmental agency.

Note 10: Commitments and Contingencies

Leases:

The Company leases office space in Washington, D.C. and Fairfax, Virginia under operating leases expiring at various dates through 2016. The premises leases contain scheduled rent increases and require payment of property taxes, insurance and certain maintenance costs. The minimum future commitments under lease agreements existing as of September 30, 2012 are approximately as follows:

Year ending December 31,
2012	$	76,000
2013		203,000
2014		174,000
2015		178,000
2016		121,000
	$	752,000

Total rent expense amounted to $172,895 and $229,720 for the nine months ended September 30, 2012 and 2011, respectively.

In 2010, Innovative vacated its office space prior to expiration of the lease. The landlord subsequently filed a lawsuit against the Company under which it pursued total damages of approximately $1,000,000, which approximates the rent charges for the remaining term of the lease. On February 14, 2011, Innovative entered into a settlement agreement in which it agreed to a payment of $350,000 on May 31, 2011. In the event Innovative did not make the payment timely, it agreed to a confessed judgment in the amount of $936,510 and this amount was included in other accrued liabilities as of December 31, 2010. In July 2011, the settlement agreement was amended to extend the $350,000 payment till August 8, 2011. The entire $350,000 was paid in full by August 8, 2011. As such, $586,510 was recognized as a gain from legal settlement during the twelve months ended December 31, 2011.

Late Deposit of Payroll Taxes and Employee Income Tax Withholdings:

At September 30, 2012, the Company is delinquent with filing and remitting payroll taxes of approximately $4,140,073 including estimated penalties and interest related to payroll taxes withheld since December 31, 2009. The Company has recorded the delinquent payroll taxes, which are included in accrued expenses on the balance sheet. Although the Company has not entered into any formal repayment agreements with the applicable tax authorities, management plans to make payment as funds become available. Penalties and interest amounts are subject to increase based on a number of factors that can cause the estimated liability to increase further. Interest and penalties were accrued in an amount estimated to cover the ultimate liability As of September 30, 2012 and December 31, 2011, the total of payroll tax accrued and income tax withheld balances including penalties and interest, amounted to $4,140,073 and $3,694,635, respectively. The Company is currently in discussions with the taxing authorities to develop a payment plan. On April 25, 2011 the taxing authorities filed a notice of federal tax lien in the amount of $614,990 in Fairfax, VA.

Employment Agreement:

On April 1, 2009, Innovative entered into an employment agreement with its President and Chief Executive Officer through March 31, 2014, which provides for a minimum annual salary of $198,000. At January 31, 2012 this agreement was cancelled and replaced by a consulting agreement as the President and Chief Executive Officer of Innovative retired.

Contracts:

Substantially all of the Company’s revenues have been derived from prime or subcontracts with the U.S. government. These contract revenues are subject to adjustment upon audit by the Defense Contract Audit Agency. Audits have been finalized through 2005. Management does not expect the results of future audits to have a material effect on the Company’s financial position or results of operations.

Delinquent payables

The Company has been delinquent in numerous payables to different parties of which some filed lawsuits against the Company. All necessary accruals have been made as of September 30, 2012 and December 31, 2011 and are included in accounts payable and other accrued liabilities.

Note 11: Income Taxes

The Company’s effective income tax rate is lower than what would be expected if the federal statutory rate were applied to income from continuing operations primarily because of the deferred tax asset being fully reserved.

Temporary differences giving rise to the deferred tax assets consist primarily of the excess of the goodwill and other intangible assets for tax reporting purposes over the amount for financial reporting purposes, and net operating loss carry forwards. The Company’s ability to utilize the federal and state tax assets is uncertain; therefore the deferred tax asset is fully reserved.

At September 30, 2012, the Company had net operating loss carry forwards of approximately $10 million for federal and Virginia state tax purposes expiring through 2031.

The Company has filed extensions for its 2011 federal and state income tax returns.

The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively. As of September 30, 2012, the Company has no accrued interest and penalties related to uncertain tax positions.

Note 12: Employee Benefit Plan

Innovative has a defined contribution employee benefit plan covering all full time employees who elect to participate. The plan provides for elective salary deferrals by employees and annual elective matching contributions. There were no employer contributions for the nine months ended September 30, 2012 and 2011.

Innovative has been late in making deposits of employee deferrals. The Department of Labor has reviewed Innovative’s employee benefit plan document as well as other records to determine the status of compliance. The Department of Labor and the Company have determined that a remaining total of $183,304 is to be deposited in the plan, which includes all principal and any penalties. The Company is working with the Department of Labor on a payment plan. In addition, the Department of Labor has required that the plan be terminated.

Note 13: Capital Stock

Common Stock:

The Company has authorized 200,000,000 shares of common stock, with a par value of $0.001 per share.

As of September 30, 2012 and December 31, 2011, 15,999,538 and 15,129,973 shares, respectively, of the Company common stock were issued and outstanding.

Preferred Stock:

The Company has authorized 50,000,000 shares of preferred stock, with a par value of $0.001 per share (“Preferred Stock”). The Preferred Stock may be issued from time to time in series having such designated preferences and rights, qualifications and to such limitations as the Board of Directors may determine.

The Company has designated 38,000,000 shares of the preferred stock as Series A Convertible Preferred Stock (“Series A Stock”). The holders of Series A Stock have voting rights with a $2.00 liquidation preference per share, and may convert each share of Series A Stock into one share of common stock at any time. Series A Stock converts automatically upon the occurrence of an offering meeting certain criteria and the sale of the Company. Holders of the Series A Stock are entitled to accrue dividends based on the prior fiscal year’s net income equal to 10% of such net income.

As of September 30, 2012 and December 31, 2011, there were 37,194,758 and 36,894,758 shares, respectively, of Series A Convertible Preferred Stock outstanding and no dividends have been accrued.

The Company has designated 7,800,000 shares of the preferred stock as Series B Convertible Preferred Stock (“Series B Stock”). The holders of Series B Stock have voting rights with a two times the original issue price plus any declared or accrued but unpaid dividends liquidation preference to the Company’s Series A Convertible Preferred and Common Stock. Each share of Series B Stock may convert to common stock at any time at the conversion rate. The conversion rate is defined 120% of the average market closing price of the Common Stock as determined for the 30-day period ending two business days prior to the applicable closing under the May 21, 2012 Note Purchase Agreement. Series B Stock converts automatically upon the occurrence of a listing of the common stock on the NASDAQ or American Stock Exchange. Holders of the Series B Stock are entitled to accrue dividends based at a 6% rate per annum.

As of September 30, 2012 and December 31, 2011, there were no shares, of Series B Convertible Preferred Stock issued and outstanding and no dividends have been accrued.

Warrants:

For the three months ended March 31, 2012, the Company granted 2,047,000 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital, renewals of loans and settlement of debt due. The warrants have an exercise price of $0.01 per share and a life of five years. All warrants were fully vested on the date of the grant. The Company has determined through a Black Scholes analysis that the fair value of the warrants was $87,156 at the time of issue.

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	73.93	%
Average risk free interest rate	1.07	%
Expected life (in years)	5.0

For the three months ended June 30, 2012, the Company granted 12,296,667 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital, renewals of loans, services, and settlement of debt due. The warrants have an exercise price of $0.01 to $0.069 per share and a life of five years. All warrants were fully vested on the date of the grant. Out of total warrant issued, 2,700,000 warrants that were issued are related to Note holders, the fair value of $178,470 was determined through Black Scholes analysis which was charged as an expense, 846,667 warrants that were issued are related to service providers, the fair value of $26,525 was determined through Black Scholes analysis and was charged as an expense and 8,750,000 warrants were issued in conjunction with Convertible Note Payable (Note 9).

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	74.85	%
Average risk free interest rate	0.72	%
Expected life (in years)	5.0

For the three months ended September 30, 2012, the Company granted 2,692,000 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital, renewals of loans, and settlement of debt due. The warrants have an exercise price of $0.01 per share and a life of five years. All warrants were fully vested on the date of the grant. The Company has determined through a Black Scholes analysis that the fair value of the warrants was $160,828 at the time of issue.

The following assumptions were used in arriving at the fair value of the above noted warrants:

Expected dividend yield	0	%
Expected volatility	76.63	%
Average risk free interest rate	0.62	%
Expected life (in years)	5.0

A summary of the Company’s warrant activity and related information is as follows:

Warrant Summary	Warrants			Weighted Average Exercise Price

Outstanding, January 1, 2011		43,077,129		$	0.513
Issued		20,165,000			0.064
Exercised		-			-
Forfeited/Expired		(130,565	)		(11.12	)
Outstanding, December 31, 2011		63,111,564			0.347

Issued		17,035,667			0.04
Exercised		-			-
Forfeited/Expired		(4,513	)		(3.89	)
Outstanding, September 30, 2012		80,142,718		$	0.28

At September 30, 2012, there were 80,142,718 warrants outstanding and exercisable. These warrants had a weighted average exercise price of $0.28 and a weighted average remaining life of 40.8 months. The intrinsic value is not greater than the grant price.

Stock Option Plan:

The Deferred Stock and Restricted Stock Plan (the “Plan”), under which employees, officers, directors, consultants and other service providers may be granted non-qualified and/or incentive stock options. Generally, all options granted expire five years from the date of grant. All options have an exercise price equal to or higher than the fair value of the Company’s stock on the date the options are granted. Options generally vest over three years with the exception of the initial grants of 2010, which vested immediately.

A summary of the status of stock options issued by the Company as of September 30, 2012 is presented in the following table.

	Number of Options			Weighted Average Exercise Price
Outstanding at January 1, 2011	13,451,980		$	0.503
Granted	-			-
Exercised/Expired/Cancelled	(22,480	)		(2.22	)

Outstanding at December 31, 2011	13,429,500			0.50
Granted	-			-
Exercised/Expired/Cancelled	-			-
Outstanding at September 30, 2012	13,429,500		$	0.50

Exercisable at September 30, 2012	13,262,686		$	0.50

These stock options have a weighted average remaining life of 34.8 months. The intrinsic value is not greater than the grant price.

2012 Consultant Stock Plan

The 2012 Consultant Stock Plan (the “Plan”), under which consultants and other service providers may be granted shares of the Company’s Common Stock. The Company has reserved up to 5,000,000 shares under this plan. The plan will expire in 10 years. The stock under this plan has been registered under a S-8. As of the nine months ended September 30, 2012, the Company has granted 869,565 shares valued at $60,000 for services rendered in prior period. The Company issued these shares during the quarter ended September 30, 2012.

Equity Credit Line

On July 25, 2012, the Company entered into an equity credit line with Dutchess Opportunity Fund II, LP for up to $5,000,000 over a three-year term. Under this arrangement the Company may obtain working capital from Dutchess in exchange for common stock. The amount of the put is determined by 200% of the average daily volume for the 3 days prior to the put date and the purchase price is determined 95% of the volume weighted average price during the 5 trading days after the put date. As of the nine months ended September 30, 2012, this line has not been used.

Note 14: Subsequent Events

On October 2, 2012, Erich Winkler, a director, loaned the Company $20,000. The loan carried a flat fee of $2,000 and a maturity date of October 17, 2012. In addition, warrants of 20,000 were granted for the purchase of common stock with a strike price of $0.07 and an expiration date of 5 years. Ian Reynolds, a director, also guaranteed this loan. This loan has been paid in full.

On October 4, 2012, the Company borrowed $75,000 from the Kay M. Gumbinner Trust. The loan carried a flat fee of $4,500 and a maturity date of October 26, 2012. In addition, warrants of 150,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. Ian Reynolds, a director, also guaranteed this loan. This loan has been paid in full.

On October 19, 2012, the Company borrowed $100,000 from the Kay M. Gumbinner Trust. The loan carried an interest rate of 2.5% per annum and a maturity date of October 31, 2012. In addition, warrants of 200,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. A director also guaranteed this loan.

On October 22, 2012, the Company borrowed $100,000 from the Atlas Advisors. The loan carried a flat fee of $10,000 and a maturity date that is 15 business days after receipt of the Principal amount. In addition, warrants of 200,000 were granted for the purchase of common stock with a strike price of $0.01 and an expiration date of 5 years. Ian Reynolds, a director, also guaranteed this loan.

On October 23, 2012, the Company issued 1,000,000 warrants with a strike price of $0.01 to YG Funding, Bondi, and Briarwood under a repayment agreement. The Company recorded $60,022 as an interest expense during the September 30, 2012 quarter.

On November 6, 2012, the Company borrowed $50,000 from the Kay M. Gumbinner Trust. The loan carries a interest rate of 2.5% pa and a maturity date of November 19, 2012. In addition, 100,000 shares of common stock or preferred stock were granted. Ian Reynolds, a director, also guarantees this loan.

On October 23, 2012 a shareholder converted 300,000 shares of Series A Convertible Preferred Stock to common shares.

Item 2: Management’s discussion and analysis of financial condition and results of operations

The following discussion and analysis of the results of operations and financial condition of Innolog Holdings Corporation and its wholly owned subsidiary, for the nine months ended September 30, 2012 and 2011 should be read in conjunction with the consolidated financial statements and the notes to those financial statements that are included in the Current Report on Form 10-K that we filed with the Securities and Exchange Commission on April 16, 2012. References to “the Company,” “we,” “our,” or “us” in this discussion refer to Innolog Holdings Corporation and its subsidiary.

Our discussion includes forward-looking statements. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “may,” “plan,” or the negative of these terms and similar expressions identify forward-looking statements. Such statements reflect our current view with respect to future events and are subject to risks, uncertainties, assumptions and other factors relating to our industry, our operations and results of operations and any businesses that we may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Some, but not all, of these risks include, among other things:

whether we will continue to receive the services of certain officers and directors;

whether we can implement our business plan by acquiring other businesses compatible with ours;

whether budgetary pressures in the federal and state governments will result in a reduction in spending which will be disadvantageous to us;

whether we can obtain funding when and as we need it; and

other uncertainties, all of which are difficult to predict and many of which are beyond our control.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Overview

We are a holding company designed to make acquisitions of companies in the government services industry. Our first acquisition, Innovative Logistics Techniques, Inc. is a solutions oriented provider of logistics services primarily to agencies of the U.S. government, but also to state and local agencies and to private businesses. We provide tools to our customers, which allow them to manage the flow of goods, information or other resources through the integration of information, transportation, inventory, warehousing, material handling and security. Our goal is to expand our business, not only through the acquisition of new contracts but also through the acquisition of companies in the government services industry. Our home office is located in Fairfax, Virginia, although we have one additional office located in Washington D.C.

The federal government is the largest consumer of services and solutions in the United States. We believe that the federal government’s spending will continue to increase in the next several years, driven by the expansion of national security and homeland security programs, the continued need for sophisticated intelligence gathering and information sharing, increased reliance on technology service providers due to shrinking ranks of government technical professionals and the continuing impact of federal procurement reforms. For example, federal government spending on information technology has consistently increased in each year since 1980. INPUT, an independent federal government market research firm, expects this trend to continue. Federal government spending on information technology increased from approximately $76 billion in federal fiscal year 2009 to $84 billion in federal fiscal year 2011 and is projected to increase to $91 billion in federal fiscal year 2016. Moreover, this data may not fully reflect government spending on classified intelligence programs, operational support services to our armed forces and complementary technical services, which include sophisticated systems engineering.

Across the national security community, we see the following trends that we believe will continue to drive increased spending and dependence on technology support contractors:

Increased Spending on Defense and Intelligence to Combat Terrorist Threats

Increased Spending on Cyber Security

Continuing Focus on Information Sharing, Data Interoperability and Collaboration

Reliance on Technology Service Providers

Inherent Weaknesses of Federal Personnel Systems

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 4 to our consolidated financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this discussion and analysis:

Contract Revenue Recognition:

Allowance for Doubtful Accounts:

Long-Lived Assets:

Goodwill:

Income Taxes:

The Company files a consolidated federal income tax return. Income taxes are accounted for using the asset and liability method under FASB ASC 740 “Income Tax”, whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities, and their respective tax basis, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized as income in the period that includes the enactment date. Estimates of the realization of deferred tax assets are based-on the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.

Stock Based Compensation:

Fair Value Measurements:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the plan has the ability to access.

Level 2: Inputs to the valuation methodology include:

quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in inactive markets;

inputs other than quoted prices that are observable for the assets or liability;

inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value:

Recent Accounting Pronouncements:

Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have a material effect on our unaudited condensed consolidated financial statements.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2012 and 2011

The following table sets forth the results of our operations for the periods indicated:

	Three Months Ended September 30, 2012 (unaudited)			% of Sales			Three Months Ended September 30, 2011 (unaudited)			% of Sales			Nine Months Ended September 30, 2012 (unaudited)			% of Sales			Nine Months Ended September 30, 2011 (unaudited)			% of Sales
Contract revenue	$	1,555,467			100.0	%	$	1,139,166			100.0	%	$	4,069,869			100.0	%	$	3,731,666			100.0	%

Direct costs		956,093			61.5			561,119			49.3			2,429,065			59.7			1,768,817			47.4

Other operating expenses		905,670			58.2			1,269,695			111.5			2,906,063			71.4			3,646,129			97.7

Bad debt expense, affiliate		-			-			-			-			-			-			27,000			0.7

Operating loss		(306,296	)		(19.7	)		(691,648	)		(60.7	)		(1,265,259	)		(31.1	)		(1,710,280	)		(45.8	)

Other income		3			-			-			-			42,609			1.0			586,510			15.7

Amortization of debt discount		(85,429	)		(5.5	)		-			-			(124,010	)		(3.1	)		-			-

Interest expense		(612,652	)		(39.4	)		(401,830	)		(35.3	)		(1,824,175	)		(44.8	)		(1,056,082	)		(28.3	)

Loss before income tax		(1,004,374	)		(64.6	)		(1,093,478	)		(96.0	)		(3,170,835	)		(77.9	)		(2,179,852	)		(58.4	)

Income tax expense		-			-			-			-			-			-			-			-

Net loss	$	(1,004,374	)		(64.6	)%	$	(1,093,478	)		(96.0	)%	$	(3,170,835	)		(77.9	)%	$	(2,179,852	)		(58.4	)%

Contract Revenues. Revenues for the three months period ended September 30, 2012 increased 36.5% over the previous year as the Company has started to generate additional revenue from new and old contracts. Revenue for the nine months ended September 30, 2012 increased 9.1% from the previous year.

On September 26, 2012 the Company was informed that it did not win the re-compete of its Army contract. The company filed a protest and on November 9, 2012 was informed that the Army is taking corrective action. Instead of moving forward with the award to the other company, the Army intends to reevaluate the proposals and make another source selection decision, which results in Innolog being back in competition as a candidate to win the re-compete.

Direct Costs. Direct costs increased as a percentage of revenue for the three and nine months ended September 30, 2012. This was primarily due to the tightening of accounting controls by the Company, resulting in a more accurate allocation of expenses to the appropriate direct cost pools.

Other Operating Expenses. Operating expenses include indirect contract costs and costs not allocable to contracts. For the three and nine months ended September 30, 2012 these expenses decreased year over year, due to more efficient allocation of expenses to our contracts, and other cost reductions despite opening our Dayton office earlier in 2012.

Operating Loss. The Company decreased its operating loss by 55.7% in the three months ended September 30, 2012 from the previous year. The operating loss for the nine months ended September 30, 2012 decreased by 26.0% over the previous year. This was due to a decrease in indirect contract costs as discussed above.

Other Income. The other income for the nine months ended September 30, 2012 is a gain on debt settlement relating to a settlement agreement with an unrelated note payable whereby the company and lender settled for an amount less than what had been accrued. The other income for the nine months ended September 30, 2011 relates to a legal settlement involving the settlement of an office lease obligation.

Net Loss. Our net loss for the period increased. For the nine months ended September 30, 2012 and 2011, our net loss was $3,170,835 and $2,179,852, respectively. This was due to an increase in interest expense, an increase in debt discount amortization and decease in other income. The company has continued to have to borrow funds from high expense lenders to cover its operating losses.

Liquidity and Capital Resources

Cash Flows

Net cash used in operating activities was $1,267,349 for the nine months ended September 30, 2012. Cash was used primarily to support operating losses. Net cash flow used in operating activities was $703,093 for the nine months ended September 30, 2011.

Net cash used in investing activities was $11,717 for the nine months ended September 30, 2012 and $1,328 for the nine months ended September 30, 2011. In both periods, cash was used in investing activities for equipment purchases.

Net cash provided by financing activities was $1,319,226 for the nine months ended September 30, 2012 and $704,421 for the nine months ended September 30, 2011. Receipts of cash flow from financing activities during the nine months ended September 30, 2012 and 2011 primarily consisted of borrowings from and payments to related and non-related party lenders.

Material Impact of Known Events on Liquidity

Other than as discussed herein, there are no known events that are expected to have a material impact on our short-term or long-term liquidity.

Capital Resources

We have financed our operations primarily through cash flows from operations and borrowings. Since the Company is currently still operating at a negative cash flow, continued significant short-term borrowings are necessary to cover working capital needs. Typically, our affiliates or other individuals provide these loans although they are under no obligation to provide funding to us.

Aside from needing cash for our operations, we may require additional cash due to changes in business conditions or other future developments, including any investments or acquisitions we may decide to pursue. To the extent it becomes necessary to raise additional cash in the future, we may seek to raise it through the sale of debt or equity securities, funding from joint venture or strategic partners, debt financing or loans, issuance of common stock or a combination of the foregoing. We currently do not have any binding commitments for, or readily available sources of, additional financing. However, we are in discussions with several sources for financing commitments. We cannot provide any assurances that we will be able to secure the additional cash or working capital we may require to continue our operations.

At September 30, 2012 we had $40,160 of unrestricted cash on hand. We will need significant additional financing to fund our operations over the next 12 months. The Company has sustained substantial operating losses since inception, and had a stockholders’ deficit (defined as total assets minus total liabilities) of $12,111,911 and $11,165,636 at September 30, 2012 and December 31, 2011, respectively. There are many delinquent claims and obligations, such as payroll taxes, employee income tax withholdings, employee benefit plan contributions, delinquent loans payable and accounts payable that could ultimately cause the Company to cease operations.

We may not have sufficient cash flows to fund our operations over the next twelve months without the completion of additional financing. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.

Because of our historic net losses and negative working capital position, our independent auditors, in their report on our consolidated financial statements for the year ended December 31, 2011, expressed substantial doubt about our ability to continue as a going concern.

Contractual Obligations and Off-Balance Sheet Arrangements

Loans From Related Parties

During the nine months ended September 30, 2012, we received loans totaling $2,890,029 from related parties and paid back loans totaling $632,633 and the bank line of credit of $497,570. As of the nine months ended September 30, 2012 the outstanding balance was $4,758,197. Of these loans $768,197 were in default as of September 30, 2012.

As part of the Company’s continued balance sheet restructuring, $2,000,000 of related party debt was refinanced from a demand note to a long-term liability with a maturity date of May 31, 2017.

Loans From Unrelated Parties

During the nine months ended September 30, 2012, we received loans totaling $1,005,000 from unrelated parties and paid back loans totaling $1,183,500. As of the nine months ended September 30, 2012 the outstanding balance was $718,500. Of these loans $543,500 were in default as of September 30, 2012.

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following table summarizes our contractual obligations as of September 30, 2012, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		5 years +
Bank Indebtedness	$	-	$	-	$	-	$	-	$	-
* Other Indebtedness		5,476,697		1,726,697		-		3,750,000		-
Operating Leases		752,000		76,000		555,000		121,000		-
Totals	$	6,228,697	$	1,802,697	$	555,000	$	3,871,000	$	-

* Gross of debt discount of $1,584,570

Off-Balance Sheet Arrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company we are not required to provide this information.

Item 4: Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of September 30, 2012, we carried out an evaluation, under the supervision of and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and chief financial officer, to allow timely decisions regarding required disclosures.

Based on that evaluation, our principal executive officer and chief financial officer has concluded that as of September 30, 2012, our disclosure controls and procedures were not effective due to the following material weaknesses. A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following material weaknesses in our disclosure controls and procedures:

1. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

2. We do not have sufficient review and supervision procedures for financial reporting functions. The review and supervision function of internal control relates to the accuracy of financial information reported. The failure to review and supervise could allow the reporting of inaccurate or incomplete financial information. Due to our size and nature, review and supervision may not always be possible or economically possible. Management evaluated the impact of our significant number of audit adjustments and has concluded that the control deficiency that resulted represented a material weakness.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Remediation of Material Weaknesses

In April 2011, we retained the services of an outside accounting firm with experience in financial reporting to assist us with the Company’s accounting and the process of implementing internal controls. Written documentation of the internal controls of financial reporting has been prepared and implemented and our disclosure controls and procedures are effective. As the Company’s accounting function is out sourced, we do not have sufficient separation of duties and sufficient internal review of financial reporting functions. The Company does not anticipant adding additional accounting staff in the near future.

Changes in Internal Controls

During the quarter covered by this report, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting except as noted above.

PART II - OTHER INFORMATION

Item 1: Legal Proceedings.

There has been no change to the legal proceedings discussed in our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on April 16, 2012.

Item 1A: Risk Factors.

As a smaller reporting company we are not required to provide this information.

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3: Defaults Upon Senior Securities.

None

Item 4: Mine Safety Disclosures.

Not applicable.

Item 5: Other Information.

Not applicable.

Item 6: Exhibits.

The Exhibit Table below lists those documents that we are required to file with this report.

Number	Description

2.1		Amended and Restated Merger Agreement by and among the Company and Innolog Holdings Corporation as amended dated August 11, 2010(2)

3.1		Amended and Restated Articles of Incorporation (1)

3.2		Bylaws (2)

3.3		Certificate of Amendment of the Articles of Incorporation (2)

3.4		Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (2)

3.5		Articles of Merger between GCC Merger Sub Corporation and Innolog Group Corporation filed August 18, 2010 with the Secretary of State of Nevada (3)

3.6		Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (5)

10.1		Promissory Note dated July 6, 2012 in the principal amount of $50,000 issued by Innolog Holdings Corporation in favor of Kay M. Gumbinner Trust. *

10.2		Promissory Note dated July 23, 2012 in the principal amount of $55,000 issued by Innolog Holdings Corporation in favor of Kay M. Gumbinner Trust. *

10.3		Promissory Note dated August 6, 2012 in the principal amount of $75,000 issued by Innolog Holdings Corporation in favor of Kay M. Gumbinner Trust. *

10.4		Promissory Note dated August 21, 2012 in the principal amount of $75,000 issued by Innolog Holdings Corporation in favor of Kay M. Gumbinner Trust. *

10.5		Promissory Note dated September 5, 2012 in the principal amount of $75,000 issued by Innolog Holdings Corporation in favor of Kay M. Gumbinner Trust. *

10.6		Promissory Note dated September 21, 2012 in the principal amount of $75,000 issued by Innolog Holdings Corporation in favor of Kay M. Gumbinner Trust. *

10.7		Promissory Note dated July 9, 2012 in the principal amount of $100,000 issued by Innolog Holdings Corporation in favor of Atlas Advisors LLC. *

10.8		Promissory Note dated August 7, 2012 in the principal amount of $100,000 issued by Innolog Holdings Corporation in favor of Atlas Advisors LLC. *

10.9		Promissory Note dated August 23, 2012 in the principal amount of $100,000 issued by Innolog Holdings Corporation in favor of Atlas Advisors LLC. *

10.10		Promissory Note dated September 21, 2012 in the principal amount of $100,000 issued by Innolog Holdings Corporation in favor of Atlas Advisors LLC. *

10.11		Promissory Note dated September 28, 2012 in the principal amount of $65,000 issued by Innolog Holdings Corporation in favor of Michael Kane. *

10.12		Promissory Note dated September 28, 2012 in the principal amount of $25,000 issued by Innolog Holdings Corporation in favor of Bruce Riddle. *

21.0		Subsidiaries of Innolog Holdings Corporation (4)

31.1		Rule 13a-14(a)/15d-14(a) Certification*

31.2		Rule 13a-14(a)/15d-14(a) Certification*

32.1		Section 906 Certification*

* Filed herewith.

(1)	Filed on February 12, 2007 as an exhibit to the Company’s Registration Statement on Form SB-2, and incorporated herein by reference.

(2)	Filed on August 13, 2010 as an exhibit to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
(3)	Filed on October 15, 2010 as an exhibit to the Company’s Amendment No. 3 to Current Report on Form 8-K and incorporated herein by reference.
(4)	Filed on January 12, 2011 as an exhibit to the Company’s Amendment No. 1 to the Registration Statement on Form S-1 and incorporated herein by reference.
(5)	Filed on May 25, 2012 as an exhibit to the Company’s Current Report on Form 8-K, and incorporated herein by reference.

SIGNATURES

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

INNOLOG HOLDINGS CORPORATION

Dated:	November 14, 2012	By:	/s/ William P. Danielczyk

		Name: William P. Danielczyk
		Title: Executive Chairman of the Board
		Principal Executive Officer

Dated:	November 14, 2012	By:	/s/Eric Wagner
		Name: Eric Wagner
		Title: Chief Financial Officer

EX-10.1 2 v326485_ex10-1.htm EXHIBIT 10.1

PROMISSORY NOTE

US$50,000.00 (Principal Amount)

July 6, 2012

FOR VALUE RECEIVED, the undersigned, Innolog Holdings Corporation (“IHC”) and Innovative Logistics Techniques, Inc. (“Innolog”) (together the “Maker”), jointly and severally promise to pay to the Kay M. Gumbinner Trust (the “Holder”), at such place as the Holder may later designate in writing, in lawful money of the United States, the principal sum of FIFTY THOUSAND US DOLLARS ($50,00.00) (“Principal Amount”) in accordance with this promissory note (the “Note”) under the terms set forth herein. All of the obligations directly or indirectly due to Holder hereunder and in connection with the transactions contemplated hereby, including without limitation principal, interest, fees, past due fees, settlement amounts, purchase prices, costs and expenses, are collectively referred to as the “Obligations.”

Maker represents, warrants and covenants that the net proceeds of this loan shall be used solely to pay the payroll, including payroll taxes for the employees of Maker which are currently due and payable.

Repayments & Special Terms

Principal and interest under this Note is due and payable on the earlier of (a) 1:00 PM EST on the business day following the receipt of the account receivables described in Section 6 hereof and (b) 2:00 PM EDST July 31, 2012 (“Maturity Date”). Furthermore, this Note shall be repaid as a first priority (other than to Atlas Advisors for repayment of its existing note) from any and all amounts received by Maker from ANY accounts receivable received by any of Maker subject only to normal operating expenses and regular current operating accounts payables until this Note is repaid in full. No payments are to be made to any other notes (other than to Atlas Advisors for repayment of its existing note) or government agencies prior to the repayment of this Note.

Maker shall have the right to prepay at any time and from time to time, in advance of maturity, all or part of the principal amount of this Note, along with the interest and Fee and other amounts described hereunder. Each payment shall be applied first to the principal balance due.

Maker represents and warrants that the statements in the email dated September 24, 2011 1:30AM from Robert Gumbinner as confirmed and agreed by Mr. Danielczyk in an email dated September 24, 2011 10:52AM are true and accurate and the terms of such email are incorporated herein by reference and made a part hereof as representations, warranties and covenants with respect to this Note.

TIME IS OF THE ESSENCE on the repayment of this Note. There is no grace period on the repayment and payment of the amounts due hereunder.

Interest/Fee/Additional Compensation

(a) Maker shall pay to Payee a flat fee (“Fee”) of Four Thousand Dollars ($4,000), due and payable on the Maturity Date, which Fee shall be deemed earned at the time of the initial funding of the loan. If, and only if, this Note is repaid in full by wire transfer by 3:00 PM EDST, Thursday, July 19, 2012, then the Fee shall be reduced by $250, so the total fee would be $3,750.

(b) In addition, Maker shall issue to Payee or Payee’s designee 100,000 Warrants, convertible into common stock of Innolog Holdings Corporation, a Nevada corporation, at an exercise price of $0.01 per share for five years from the date hereof, with such other terms that are substantially the same as other similar warrants.

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Late Fee and Default Interest

As noted above, time is of the essence on the repayment of this Note. If this Note is not paid in full on or before the Maturity Date, there shall be a late fee of ten percent (10%) or ($5,000). There shall accrue additional Late Fees of 10% of the outstanding amounts owed hereunder (principal, plus interest, plus late fees) every ten (10) calendar days until repaid in full. In addition, after the Maturity Date, this Note shall accrue interest from the Maturity Date at the rate of eighteen percent (18%) per annum, compounded daily until paid in full (“Default Interest”). Such Default Interest shall be on the outstanding principal amount, the interest due or accrued under the Note and the Late Fee(s).

Events of Default

The following shall constitute Events of Default hereunder:

(a) If Maker or Guarantor defaults in the payment of any amount due on this Note when due (there is no requirement for any notice and there is no right to cure any failure of payment when due); and

(b) If Maker uses any accounts receivables or other moneys that come into the company other than for payment of amounts due to governmental agencies (e.g., IRS, Department of Labor or other account related to 401k obligations due), normal operating expenses and regular current accounts payables before all amounts due under this Note are repaid in full;

(c) If Maker directly or indirectly redirects any of the Collateral or proceeds of the Collateral without first paying all of the amounts due hereunder;

(d) If Maker or Guarantor shall (i) make a general assignment for the benefit of creditors, or (ii) apply for or consent to the appointment of a receiver, trustee or liquidator for itself or all or a substantial part of its assets, or (iii) be adjudicated a bankrupt or insolvent, or (iv) file a voluntary petition in bankruptcy or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether Federal or state) relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding (whether Federal or state) relating to relief of debtors, or (v) suffer or permit to continue unstayed and in effect for sixty (60) consecutive days any judgment, decree or order entered by a court of competent jurisdiction, that approves an involuntary petition seeking reorganization of Maker, or appoints, pursuant to such a petition, a receiver, trustee or liquidator for it or all or a substantial part of its assets; and

(e) If any confession of judgment is filed or threatened to be filed against IHC, Innolog or Guarantor;

(f) If any lien or levy is imposed on IHC, Innolog or Guarantor; and

(g) If any representation or warranty of Maker is untrue or any covenant of Maker is breached, including the September 24, 2011 email.

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Remedies

(a) Upon the occurrence of an Event of Default, Holder may, in Holder's sole and absolute discretion and without notice or demand to Maker or to Guarantor, accelerate the due date of any amounts owed hereunder and declare the entire amount of principal and interest thereon remaining outstanding hereunder immediately due and payable, whereupon, the same shall forthwith become and be due and payable without any presentment, demand or notice of any kind, all of which are expressly waived by Maker and Guarantor.

(b) If an Event of Default shall occur, the Maker and Guarantor shall jointly and severally immediately pay the Holder, on demand by the Holder, all costs and expenses incurred by the Holder in connection with the collection and enforcement of this Note, including attorneys' fees, accountants and tax advisor’s fees and the amounts described above.

(c) Maker and Guarantor understand, acknowledge and agree, that upon an Event of Default, Holder shall immediately file the confession of Judgments against each of IHC, Innolog and Guarantor under this Note, the Guaranty, the Forbearance Agreement and the Forbearance Guaranty.

(d) Holder may immediately file and send to the appropriate authorities the Letter form Maker directing that all payments under the two Navy Contracts listed below be sent directly to the account designated by Holder until such time as Holder states in writing that all of the Obligations and all amounts owed hereunder are paid in full.

Security

Maker hereby grants to Payee a security interest in the following accounts receivable of Maker or Innolog as listed below:

1. N0017311F0438 NRL-EWS Contract Name: Navy; (July Billing Amount approximately $70,000), and if this Note is not repaid in full with such proceeds any and all future billings thereunder, referred to by Maker as the “Little Navy” A/R, and

2. N0017-08-C-20423 3018 ODCSLOG Contract Name: Navy; (July Billing Amount submitted on or about July 1, 2012, for approximately $200,000), and if this Note is not repaid in full with such proceeds any and all future billings thereunder, referred to by Maker as the “Big Navy” A/R

each, as may be more fully described in an Attachment A if so attached, and the proceeds therefrom from time to time (the “Collateral”). If for any reason such Collateral is compromised or becomes unavailable to Holder, then future accounts receivable under such above-referenced contracts shall be assigned to Holder and such additional accounts receivable shall be deemed part of the Collateral.

Maker shall execute and immediately deliver (a) such documents and instruments as Payee may request from time to time to secure, evidence and perfect Payee's security interest and priority in the Collateral; and (b) such documents and instruments as Payee may request from time to time to mandate that the US Navy direct and make any and all future payments to the Holder at such account as designated by Holder, until such time as this Note, all of the Obligations hereunder, and all other payment obligations herein are paid in full; and (c) such powers of attorney as may be requested by Holder in order for Holder to act upon and receive direct payment of the Collateral from the US Navy or any governmental agency related thereto.

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In addition, this Note and the Obligations, including the full and prompt payment of and the performance of this Note and the commitments hereunder and a backstop of any clawback, preference or alleged preference of the payments made hereunder to Holder by any court, trustee or governmental body of any kind are directly, unconditionally and irrevocably guaranteed by Dr. Ian Reynolds, an individual (“Guarantor”) pursuant to a Guaranty and Indemnity Agreement with Guarantor of even date herewith (the “Guaranty”). In addition to the Guaranty, all of the Obligations are secured by the accounts receivable of Maker; provided, however that the holder may not file any instruments perfecting such security interest until after the Maturity Date. Upon request by the Holder, Maker shall immediately execute and deliver such security interests, UCC-I and other filing statements or other documents or interests requested by Holder in order to perfect the above-referenced security interests and the direct payment of existing or future accounts receivables to Holder.

Priority of Repayment.

This Note shall be repaid by Maker prior to the repayment of any other debt of Maker other than normal operating expenses and the repayment of the existing outstanding loan to Atlas Advisors.

Miscellaneous

(a) This Note shall be deemed to be made and entered into under the laws of the Commonwealth of Virginia and for all purposes shall be construed and enforced in accordance with the laws of the Commonwealth of Virginia, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. Maker and Guarantor (i) hereby irrevocably submit to the exclusive jurisdiction of the United States District Court sitting in the Northern District of Virginia and the courts of the Commonwealth of Virginia located in Fairfax County for the purposes of any suit, action or proceeding arising out of or relating to this Note and (ii) hereby waive, and agree not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper.

(b) This Note shall be binding upon Maker and Maker's successors and assigns and shall inure to the benefit of Holder and Holder's successors and assigns; and each reference herein to Maker or to Holder shall, except where the context shall otherwise require, be deemed to include its respective successors and assigns. This Note shall be binding upon Guarantor and Guarantor's heirs, successors and assigns and shall inure to the benefit of Holder and Holder's successors and assigns; and each reference herein to Guarantor, except where the context shall otherwise require, be deemed to include its heirs, successors and assigns. Notwithstanding the foregoing, neither Maker nor Guarantor shall have any right to assign his obligations hereunder without Holder's prior written consent.

(c) Any failure by Holder to exercise any right or remedy hereunder shall not constitute a waiver of the right to exercise the same or any other right or remedy at any subsequent time, and no single or partial exercise of any right or remedy shall preclude other or further exercise of the same or any other right or remedy.

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(d) Maker and Guarantor, and all others that may become liable for all or any part of the obligations evidenced by this Note, hereby waive presentment, demand, notice of nonpayment, protest and all other demands’ and notices in connection with the delivery, acceptance, performance and enforcement of this Note, and do hereby consent to any number of renewals of extensions of the time or payment hereof and agree that any such renewals or extensions may be made without notice to any such persons and without affecting their liability herein and do further consent to the release of any person liable hereon, all without affecting the liability of the other persons, firms or Maker or Guarantor liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.

(i) No delay or omission on the part of the Holder in exercising its rights under this Note, or course of conduct relating hereto, shall operate as a waiver of such rights or any other right of the Holder, nor shall any waiver by the Holder of any such right or rights on any one occasion be deemed a waiver of the same right or rights on any future occasion.

(ii) THE MAKER AND GUARANTOR ACKNOWLEDGE THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY WAIVE ITS RESPECIVE RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.

(e) The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder’s right to pursue actual damages for any failure by the Maker or Guarantor to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, the warrants and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Maker or Guarantor (or the performance thereof). The Maker and the Guarantor acknowl-edge that a breach by it of its obligations hereunder will cause irreparable and material harm to the Holder and that the remedy at law for any such breach may be inadequate. Therefore the Maker and Guarantor each agree that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available rights and remedies, at law or in equity, to seek and obtain such equitable relief, including but not limited to an injunction restraining any such breach or threatened breach, without the necessity of showing economic loss and without any bond or other security being required.

(f) Maker and Guarantor shall pay all costs and expenses associated with this Note, the loan and the transactions contemplated hereby and hereunder.

(g) Maker and Guarantor agree to pay immediately upon request and without any need of any approvals or determinations of any kind all costs and expenses of enforcement of this Note, including, without limitation, attorneys’ fees and expenses.

(h) Maker and Guarantor shall immediately execute and deliver such other documents, agreements and instruments as requested by Holder to carry out the intent of this Note and related documents and to protect Holder’s interests in any collateral or otherwise.

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(i) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Holder.

(j) Maker acknowledges the position of Fred Gumbinner as a trustee and beneficiary of Holder and as the son of Robert Gumbinner, the primary trustee and beneficiary of Maker, and as a consultant and legal counsel for Maker. Maker also acknowledges that Maker has repeatedly requested the assistance and involvement of Fred Gumbinner in procuring loans from Holder and in negotiating and drafting promissory notes, forbearance agreements and other documents related thereto. Maker acknowledges that Fred Gumbinner’s role, business representation and legal representation in this transaction is for and on behalf of Holder and specifically now and forever with full and complete knowledge, corporate authority and consent, waives any conflict of interest by or potential conflict of interest of Fred Gumbinner and hereby indemnifies and holds him harmless against any losses, claims or other actions of any kind.

(j) Maker and Guarantor understand, acknowledge and agree that the occurrence of an Event of Default hereunder shall cause acceleration of not only this Note and the Obligations hereunder, but also acceleration of the Forbearance Agreement and additional late fees and obligations thereunder.

CONFESSED JUDGMENT

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR OR GUARANTOR AND ALLOWS THE HOLDER TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.

Maker, Innolog Holdings Corporation and Innovative Logistics Techniques, Inc., and Guarantor, jointly and severally (all three collectively hereinafter referred to as “Debtor”), promise to pay to the order of Holder the sum of ONE HUNDRED THOUSAND DOLLARS AND ZERO CENTS ($100,000.00), plus any additional Late Fee(s), plus interest on the entire outstanding Obligations at 18% per annum, compounded daily, from the Maturity Date until paid, including and after the recording of this confession of judgment, plus all costs of collection, including all attorneys’ fees, and accounting fees less credit for any payments made.

Debtor hereby appoints the following persons, or any one of them, as the undersigned’s attorney-in-fact for the purpose of confessing judgment in favor of KAY M. GUMBINNER TRUST and Robert Gumbinner and Fred Gumbinner, trustees under a trust agreement dated January 9, 2008 (known as the Kay M. Gumbinner Trust), to wit:

Richard A. Golden, of 10627 Jones Street, #101B, Fairfax, Virginia 22030

Randall Borden, of 10627 Jones Street, #201A, Fairfax, Virginia 22030.

The undersigned’s said attorneys in fact are explicitly authorized, whether a suit, motion or action be pending for the indebtedness or not, to confess judgment in favor of the KAY M. GUMBINNER TRUST and Robert Gumbinner and Fred Gumbinner, trustees under a trust agreement dated January 9, 2008 (known as the Kay M. Gumbinner Trust), in the amount of $100,000.00, plus all costs and expenses of collection (including attorneys’ fees), plus additional late fees, plus interest from the date of judgment so confessed at the rate of 18% per annum, compounded monthly, or such lesser amount of principal plus interest as the creditor may be willing to accept.

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Such confession of judgment may be made in the clerk’s office of the circuit court in the Commonwealth of Virginia, located at Fairfax, Virginia.

Furthermore, Maker and Guarantor, jointly and severally acknowledge the Holders right to pursue the guarantee, the Collateral, the security and the accounts receivable securing this debt and the Confessed Judgment. Debtor hereby expressly waives the benefit of any homestead exemption as to this debt and waives demand, protest, notice of presentment, notice of protest, and notice of non-payment and dishonor of this note. Debtor agrees this confessed judgment note is provided not in payment of, but as additional security for and evidence of obligations due to the Holder under the Note.

[Signature Page on Following Page]

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IN WITNESS WHEREOF, the undersigned, intending to be legally bound, each represent and warrant that he is duly authorized and empowered to enter into this agreement and Maker has caused this Note to be executed as of the day and year first above written by its duly authorized and empowered officer(s) or representative(s).

	MAKER

	Innolog Holdings Corporation

	By:
		William P. Danielczyk
		Executive Chairman, Chairman
		& Authorized Representative

	Innovative Logistics Techniques, Inc.

	By:
		Richard Stewart
		President
		& Authorized Representative

WITNESSED


Name:

THIS NOTE IS ENDORSED BY GUARANTOR AS IF
GUARANTOR WAS THE MAKER HEROF

Dr. Ian Reynolds

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EX-10.2 3 v326485_ex10-2.htm EXHIBIT 10.2

PROMISSORY NOTE

US$55,000.00 (Principal Amount)

July 23, 2012

FOR VALUE RECEIVED, the undersigned, Innolog Holdings Corporation (“IHC”) and Innovative Logistics Techniques, Inc. (“Innolog”) (together the “Maker”), jointly and severally promise to pay to the Kay M. Gumbinner Trust (the “Holder”), at such place as the Holder may later designate in writing, in lawful money of the United States, the principal sum of FIFTY –FIVE THOUSAND US DOLLARS ($55,000.00) (“Principal Amount”) in accordance with this promissory note (the “Note”) under the terms set forth herein. All of the obligations directly or indirectly due to Holder hereunder and in connection with the transactions contemplated hereby, including without limitation principal, interest, fees, past due fees, settlement amounts, purchase prices, costs and expenses, are collectively referred to as the “Obligations.”

Repayments & Special Terms

Principal and interest under this Note is due and payable on the earlier of (a) 1:00 PM EST on the business day following the receipt of the account receivables described in Section 6 hereof and (b) 2:00 PM EDST August 22, 2012 (“Maturity Date”). Furthermore, this Note shall be repaid as a first priority (other than to Atlas Advisors for repayment of its existing note) from any and all amounts received by Maker from ANY accounts receivable received by any of Maker subject only to normal operating expenses and regular current operating accounts payables until this Note is repaid in full. No payments are to be made to any other notes (other than to Atlas Advisors for repayment of its existing note) or government agencies prior to the repayment of this Note.

Maker represents and warrants that it will use $5,000 of the proceeds of this loan to pay a portion of the expenses of FRG Enterprises, Inc. an indirect affiliate of Holder in connection with that certain Independent Contractor Agreement among such entity and Maker and IHC, as amended.

TIME IS OF THE ESSENCE on the repayment of this Note. There is no grace period on the repayment and payment of the amounts due hereunder.

Interest/Fee/Additional Compensation

(a) Maker shall pay to Holder a flat fee (“Fee”) of Four Thousand Five Hundred Dollars ($4,500), due and payable on the Maturity Date, which Fee shall be deemed earned at the time of the initial funding of the loan. If, and only if, this Note is repaid in full by wire transfer by 1:00 PM EDST, Monday, July 30, 2012, then the Fee shall be reduced by $250, so the total fee would be $4,250.

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(b) In addition, Maker shall issue to Holder or Holder’s designee 110,000 Warrants, convertible into common stock of Innolog Holdings Corporation, a Nevada corporation (“IHC”), at an exercise price of $0.01 per share for five years from the date hereof, with such other terms that are substantially the same as other similar warrants; provided, however, that if the Company ever issues or commits to issuing warrants with a cashless exercise feature, these warrants, and the previous 100,000 warrants issued to Holder in connection with a Note dated July 6, 2012 shall immediately be reissued to Holder or its designee with such cashless exercise feature.

Late Fee and Default Interest

As noted above, time is of the essence on the repayment of this Note. If this Note is not paid in full on or before the Maturity Date, there shall be a late fee of ten percent (10%) or ($5,500). There shall accrue additional Late Fees of 10% of the outstanding amounts owed hereunder (principal, plus interest, plus late fees) every ten (10) calendar days until repaid in full. In addition, after the Maturity Date, this Note shall accrue interest from the Maturity Date at the rate of eighteen percent (18%) per annum, compounded daily until paid in full (“Default Interest”). Such Default Interest shall be on the outstanding principal amount, the interest due or accrued under the Note and the Late Fee(s).

Additional Representations, Warranties and Understandings

The Board of Directors of Maker and IHC and Dr. Harry Jacobson are aware of and have approved this Note. They recognize and agree that:

i. The timely repayment of this Loan will be made come hell or high water as a first priority for the Company.

ii. The proceeds of the Collateral will immediately be used to repay the Note, plus the Interest/Fees under this Note.

iii. If there is a default under this Note, recovery under the Dr. Reynolds guaranty including the filing of the Confession of Judgment and pursuit of all of the Accounts Receivable of the Company will be initiated immediately.

iv. If there is a default under this Note, any other amounts owed to Holder or any of its affiliates shall be immediately due and payable.

v. It is further affirmed and acknowledged that: if confessions of judgments are filed and recovery actions taken such actions shall be deemed to be the affirmative action and decision of the Board and the officers of the Company - i.e, it is not the decision of the Holder, any of its trustees or its attorney. It is the conscious decision of the Board and the Officers.

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Events of Default

The following shall constitute Events of Default hereunder:

(c) If Maker directly or indirectly redirects any of the Collateral or proceeds of the Collateral without first paying all of the amounts due hereunder;

(e) If any confession of judgment is filed or threatened to be filed against IHC, Innolog or Guarantor;

(f) If any lien or levy is imposed on IHC, Innolog or Guarantor; and

(g) If any representation or warranty of Maker is untrue or any covenant of Maker is breached, including the September 24, 2011 email.

Remedies

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(d) Holder may immediately file and send to the appropriate authorities the Letter from Maker and any other documents or instruments directing that all payments under the two Navy Contracts listed below be sent directly to the account designated by Holder until such time as Holder states in writing that all of the Obligations and all amounts owed hereunder are paid in full. Maker shall immediately (within 2 business days) execute and deliver to Holder such letters and documents requested by Holder to effectuate the above.

Security

Maker hereby grants to Holder a security interest in the following accounts receivable of Maker or Innolog as listed below:

Maker shall execute and immediately deliver (a) such documents and instruments as Holder may request from time to time to secure, evidence and perfect Holder's security interest and priority in the Collateral; and (b) such documents and instruments as Holder may request from time to time to mandate that the US Navy direct and make any and all future payments to the Holder at such account as designated by Holder, until such time as this Note, all of the Obligations hereunder, and all other payment obligations herein are paid in full; and (c) such powers of attorney as may be requested by Holder in order for Holder to act upon and receive direct payment of the Collateral from the US Navy or any governmental agency related thereto.

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Priority of Repayment.

This Note shall be repaid by Maker prior to the repayment of any other debt of Maker other than normal operating expenses.

Miscellaneous

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(f) Maker and Guarantor shall pay all costs and expenses associated with this Note, the loan and the transactions contemplated hereby and hereunder.

(i) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Holder.

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CONFESSED JUDGMENT

Maker, Innolog Holdings Corporation and Innovative Logistics Techniques, Inc., and Guarantor, jointly and severally (all three collectively hereinafter referred to as “Debtor”), promise to pay to the order of Holder the sum of ONE HUNDRED TEN THOUSAND DOLLARS AND ZERO CENTS ($110,000.00), plus any additional Late Fee(s), plus interest on the entire outstanding Obligations at 18% per annum, compounded daily, from the Maturity Date until paid, including and after the recording of this confession of judgment, plus all costs of collection, including all attorneys’ fees, and accounting fees less credit for any payments made.

Richard A. Golden, of 10627 Jones Street, #101B, Fairfax, Virginia 22030

Randall Borden, of 10627 Jones Street, #201A, Fairfax, Virginia 22030.

The undersigned’s said attorneys in fact are explicitly authorized, whether a suit, motion or action be pending for the indebtedness or not, to confess judgment in favor of the KAY M. GUMBINNER TRUST and Robert Gumbinner and Fred Gumbinner, trustees under a trust agreement dated January 9, 2008 (known as the Kay M. Gumbinner Trust), in the amount of $110,000.00, plus all costs and expenses of collection (including attorneys’ fees), plus additional late fees, plus interest from the date of judgment so confessed at the rate of 18% per annum, compounded monthly, or such lesser amount of principal plus interest as the creditor may be willing to accept.

Such confession of judgment may be made in the clerk’s office of the circuit court in the Commonwealth of Virginia, located at Fairfax, Virginia.

[Signature Page on Following Page]

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	MAKER

	Innolog Holdings Corporation

	By:
		William P. Danielczyk
		Executive Chairman, Chairman
		& Authorized Representative

	Innovative Logistics Techniques, Inc.

	By:
		Richard Stewart
		President
		& Authorized Representative

WITNESSED


Name:

THIS NOTE IS ENDORSED BY GUARANTOR AS IF
GUARANTOR WAS THE MAKER HEROF

Dr. Ian Reynolds

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EX-10.3 4 v326485_ex10-3.htm EXHIBIT 10.3

PROMISSORY NOTE

US$75,000.00 (Principal Amount)

August 21, 2012

FOR VALUE RECEIVED, the undersigned, Innolog Holdings Corporation (“IHC”) and Innovative Logistics Techniques, Inc. (“Innolog”) (together the “Maker”), and Ian Reynolds as Guarantor, each jointly and severally promise to pay to the Kay M. Gumbinner Trust (the “Holder”), at such place as the Holder may later designate in writing, in lawful money of the United States, the principal sum of SEVENTY-FIVE THOUSAND US DOLLARS ($75,000.00) (“Principal Amount”) in accordance with this promissory note (the “Note”) under the terms set forth herein. All of the obligations directly or indirectly due to Holder hereunder and in connection with the transactions contemplated hereby, including without limitation principal, interest, fees, past due fees, settlement amounts, purchase prices, costs and expenses, are collectively referred to as the “Obligations.”

Repayments & Special Terms

Principal and interest under this Note is due and payable on the earlier of (a) 1:00 PM EST on the business day following the receipt of the account receivables described in Section 6 hereof and (b) 2:00 PM EDST September 14, 2012 (“Maturity Date”). Furthermore, this Note shall be repaid as a first priority (other than to Atlas Advisors for repayment of its existing note) from any and all amounts received by Maker from ANY accounts receivable received by any of Maker subject only to normal operating expenses and regular current operating accounts payables until this Note is repaid in full. No payments are to be made to any other notes (other than to Atlas Advisors for repayment of its existing note) or government agencies prior to the repayment of this Note.

TIME IS OF THE ESSENCE on the repayment of this Note. There is no grace period on the repayment and payment of the amounts due hereunder.

Interest/Fee/Additional Compensation

(a) Maker shall pay to Holder a flat fee (“Fee”) of Four Thousand Five Hundred Dollars ($4,500.00), due and payable on the Maturity Date, which Fee shall be deemed earned at the time of the initial funding of the loan. If, and only if, this Note is repaid in full by wire transfer by 1:00 PM EDST, Monday, August 29, 2012, then the Fee shall be reduced by $500, so the total fee would be $4,000.

(b) In addition, Maker shall reimburse Holder two thousand dollars ($2,000.00) for expenses incurred in connection with this Note and prior notes; which amount shall be deemed earned and due at the time of the initial funding of the loan but may be paid on the Maturity Date.

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(c) In addition, Maker shall issue to Holder or Holder’s designee 150,000 Warrants, convertible into common stock of Innolog Holdings Corporation, a Nevada corporation (“IHC”), at an exercise price of $0.01 per share for five years from the date hereof, with such other terms that are substantially the same as other similar warrants; provided, however, that if the Company ever issues or commits to issuing warrants with a cashless exercise feature, these warrants shall immediately be reissued to Holder or its designee with such cashless exercise feature.

Late Fee and Default Interest

As noted above, time is of the essence on the repayment of this Note. If this Note is not paid in full on or before the Maturity Date, there shall be a late fee of ten percent (10%) or ($7,500). There shall accrue additional Late Fees of 10% of the outstanding amounts owed hereunder (principal, plus interest, plus late fees) every ten (10) calendar days until repaid in full. In addition, after the Maturity Date, this Note shall accrue interest from the Maturity Date at the rate of eighteen percent (18%) per annum, compounded daily until paid in full (“Default Interest”). Such Default Interest shall be on the outstanding principal amount, the interest due or accrued under the Note and the Late Fee(s).

Additional Representations, Warranties and Understandings

The Board of Directors of Maker and IHC and Dr. Harry Jacobson are aware of and have approved this Note. They recognize and agree that:

i. The timely repayment of this Loan will be made come hell or high water as a first priority for the Company.

ii. The proceeds of the Collateral will immediately be used to repay the Note, plus the Interest/Fees under this Note.

iv. If there is a default under this Note, any other amounts owed to Holder or any of its affiliates shall be immediately due and payable.

Events of Default

The following shall constitute Events of Default hereunder:

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(c) If Maker directly or indirectly redirects any of the Collateral or proceeds of the Collateral without first paying all of the amounts due hereunder; and

(e) If any confession of judgment is filed or threatened to be filed against IHC, Innolog or Guarantor; and

(f) If any lien or levy is imposed on IHC, Innolog or Guarantor; and

(g) If any representation or warranty of Maker is untrue or any covenant of Maker is breached.

6. Remedies

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Security

Maker hereby grants to Holder a security interest in the following accounts receivable of Maker or Innolog as listed below:

1. N0017311F0438 NRL-EWS Contract Name: Navy; (August Billing Amount approximately $70,000), and if this Note is not repaid in full with such proceeds any and all future billings thereunder, referred to by Maker as the “Little Navy” A/R, and

2. N0017-08-C-20423 3018 ODCSLOG Contract Name: Navy; (August Billing Amount submitted on or about July 1, 2012, for approximately $200,000), and if this Note is not repaid in full with such proceeds any and all future billings thereunder, referred to by Maker as the “Big Navy” A/R, and

3. DFAS-IN/BVD/IN, Prime # W91WAW-09-C-0173 Contract Name: ODCSLOG; Account Number 5030-116 referred to by Maker as the “Army Receivable”.

- 4 -

Priority of Repayment.

This Note shall be repaid by Maker prior to the repayment of any other debt of Maker other than normal operating expenses.

Miscellaneous

- 5 -

(f) Maker and Guarantor shall pay all costs and expenses associated with this Note, the loan and the transactions contemplated hereby and hereunder.

(i) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Holder.

- 6 -

CONFESSED JUDGMENT

Maker, Innolog Holdings Corporation and Innovative Logistics Techniques, Inc., and Guarantor, jointly and severally (all three collectively hereinafter referred to as “Debtor”), promise to pay to the order of Holder the sum of ONE HUNDRED TEN THOUSAND DOLLARS AND ZERO CENTS ($110,000.00), plus any additional Late Fee(s), plus interest on the entire outstanding Obligations at 18% per annum, compounded daily, from the Maturity Date until paid, including and after the recording of this confession of judgment, plus all costs of collection, including all attorneys’ fees, and accounting fees less credit for any payments made.

Richard A. Golden, of 10627 Jones Street, #101B, Fairfax, Virginia 22030

Randall Borden, of 10627 Jones Street, #201A, Fairfax, Virginia 22030.

The undersigned’s said attorneys in fact are explicitly authorized, whether a suit, motion or action be pending for the indebtedness or not, to confess judgment in favor of the KAY M. GUMBINNER TRUST and Robert Gumbinner and Fred Gumbinner, trustees under a trust agreement dated January 9, 2008 (known as the Kay M. Gumbinner Trust), in the amount of $110,000.00, plus all costs and expenses of collection (including attorneys’ fees), plus additional late fees, plus interest from the date of judgment so confessed at the rate of 18% per annum, compounded monthly, or such lesser amount of principal plus interest as the creditor may be willing to accept.

Such confession of judgment may be made in the clerk’s office of the circuit court in the Commonwealth of Virginia, located at Fairfax, Virginia.

Furthermore, Maker and Guarantor, jointly and severally acknowledge the Holders right to pursue the guarantee, the Collateral, the security and the accounts receivable securing this debt and the Confessed Judgment. Debtor hereby expressly waives the benefit of any homestead exemption as to this debt and waives demand, protest, notice of presentment, notice of protest, and notice of non-payment and dishonor of this note.Debtor agrees this confessed judgment note is provided not in payment of, but as additional security for and evidence of obligations due to the Holder under the Note.

[Signature Page on Following Page]

- 7 -

	MAKER

	Innolog Holdings Corporation

	By
		William P. Danielczyk
		Executive Chairman, Chairman
		& Authorized Representative

	Innovative Logistics Techniques, Inc.

	By:
		Richard Stewart
		President
		& Authorized Representative

WITNESSED


Name:

THIS NOTE IS ENDORSED BY GUARANTOR AS IF
GUARANTOR WAS THE MAKER HEROF

Dr. Ian Reynolds

- 8 -

EX-10.4 5 v326485_ex10-4.htm EXHIBIT 10.4

PROMISSORY NOTE

US$75,000.00 (Principal Amount)

August 21, 2012

Repayments & Special Terms

Principal and interest under this Note is due and payable on the earlier of (a) 1:00 PM EST on the business day following the receipt of the account receivables described in Section 6 hereof and (b) 2:00 PM EDST September 14, 2012 (“Maturity Date”). Furthermore, this Note shall be repaid as a first priority (other than to Atlas Advisors for repayment of its existing note) from any and all amounts received by Maker from ANY accounts receivable received by any of Maker subject only to normal operating expenses and regular current operating accounts payables until this Note is repaid in full. No payments are to be made to any other notes (other than to Atlas Advisors for repayment of its existing note) or government agencies prior to the repayment of this Note.

TIME IS OF THE ESSENCE on the repayment of this Note. There is no grace period on the repayment and payment of the amounts due hereunder.

Interest/Fee/Additional Compensation

- 1 -

Late Fee and Default Interest

As noted above, time is of the essence on the repayment of this Note. If this Note is not paid in full on or before the Maturity Date, there shall be a late fee of ten percent (10%) or ($7,500). There shall accrue additional Late Fees of 10% of the outstanding amounts owed hereunder (principal, plus interest, plus late fees) every ten (10) calendar days until repaid in full. In addition, after the Maturity Date, this Note shall accrue interest from the Maturity Date at the rate of eighteen percent (18%) per annum, compounded daily until paid in full (“Default Interest”). Such Default Interest shall be on the outstanding principal amount, the interest due or accrued under the Note and the Late Fee(s).

Additional Representations, Warranties and Understandings

The Board of Directors of Maker and IHC and Dr. Harry Jacobson are aware of and have approved this Note. They recognize and agree that:

i. The timely repayment of this Loan will be made come hell or high water as a first priority for the Company.

ii. The proceeds of the Collateral will immediately be used to repay the Note, plus the Interest/Fees under this Note.

iv. If there is a default under this Note, any other amounts owed to Holder or any of its affiliates shall be immediately due and payable.

Events of Default

The following shall constitute Events of Default hereunder:

- 2 -

(c) If Maker directly or indirectly redirects any of the Collateral or proceeds of the Collateral without first paying all of the amounts due hereunder; and

(e) If any confession of judgment is filed or threatened to be filed against IHC, Innolog or Guarantor; and

(f) If any lien or levy is imposed on IHC, Innolog or Guarantor; and

(g) If any representation or warranty of Maker is untrue or any covenant of Maker is breached.

6. Remedies

- 3 -

Security

Maker hereby grants to Holder a security interest in the following accounts receivable of Maker or Innolog as listed below:

1. N0017311F0438 NRL-EWS Contract Name: Navy; (September Billing Amount approximately $70,000), and if this Note is not repaid in full with such proceeds any and all future billings thereunder, referred to by Maker as the “Little Navy” A/R, and

2. N0017-08-C-20423 3018 ODCSLOG Contract Name: Navy; (September Billing Amount submitted on or about July 1, 2012, for approximately $200,000), and if this Note is not repaid in full with such proceeds any and all future billings thereunder, referred to by Maker as the “Big Navy” A/R, and

3. DFAS-IN/BVD/IN, Prime # W91WAW-09-C-0173 Contract Name: ODCSLOG; Account Number 5030-116 referred to by Maker as the “Army Receivable” (September billing).

- 4 -

Priority of Repayment.

This Note shall be repaid by Maker prior to the repayment of any other debt of Maker other than normal operating expenses.

Miscellaneous

- 5 -

(f) Maker and Guarantor shall pay all costs and expenses associated with this Note, the loan and the transactions contemplated hereby and hereunder.

(i) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Holder.

- 6 -

CONFESSED JUDGMENT

Maker, Innolog Holdings Corporation and Innovative Logistics Techniques, Inc., and Guarantor, jointly and severally (all three collectively hereinafter referred to as “Debtor”), promise to pay to the order of Holder the sum of ONE HUNDRED TEN THOUSAND DOLLARS AND ZERO CENTS ($110,000.00), plus any additional Late Fee(s), plus interest on the entire outstanding Obligations at 18% per annum, compounded daily, from the Maturity Date until paid, including and after the recording of this confession of judgment, plus all costs of collection, including all attorneys’ fees, and accounting fees less credit for any payments made.

Richard A. Golden, of 10627 Jones Street, #101B, Fairfax, Virginia 22030

Randall Borden, of 10627 Jones Street, #201A, Fairfax, Virginia 22030.

The undersigned’s said attorneys in fact are explicitly authorized, whether a suit, motion or action be pending for the indebtedness or not, to confess judgment in favor of the KAY M. GUMBINNER TRUST and Robert Gumbinner and Fred Gumbinner, trustees under a trust agreement dated January 9, 2008 (known as the Kay M. Gumbinner Trust), in the amount of $110,000.00, plus all costs and expenses of collection (including attorneys’ fees), plus additional late fees, plus interest from the date of judgment so confessed at the rate of 18% per annum, compounded monthly, or such lesser amount of principal plus interest as the creditor may be willing to accept.

Such confession of judgment may be made in the clerk’s office of the circuit court in the Commonwealth of Virginia, located at Fairfax, Virginia.

[Signature Page on Following Page]

- 7 -

	MAKER

	Innolog Holdings Corporation

	By:
		William P. Danielczyk
		Executive Chairman, Chairman
		& Authorized Representative

	Innovative Logistics Techniques, Inc.

	By:
		Richard Stewart
		President
		& Authorized Representative

WITNESSED



Name:

THIS NOTE IS ENDORSED BY GUARANTOR AS IF
GUARANTOR WAS THE MAKER HEROF

Dr. Ian Reynolds

- 8 -

EX-10.5 6 v326485_ex10-5.htm EXHIBIT 10.5

PROMISSORY NOTE

US$75,000.00 (Principal Amount)

September 5, 2012

Repayments & Special Terms

Principal and interest under this Note is due and payable on the earlier of (a) 1:00 PM EST on the business day following the receipt of the account receivables described in Section 6 hereof and (b) 2:00 PM EDST September 28, 2012 (“Maturity Date”). Furthermore, this Note shall be repaid as a first priority (other than to Atlas Advisors for repayment of its existing note) from any and all amounts received by Maker from ANY accounts receivable received by any of Maker subject only to normal operating expenses and regular current operating accounts payables until this Note is repaid in full. No payments are to be made to any other notes (other than to Atlas Advisors for repayment of its existing note) or government agencies prior to the repayment of this Note.

TIME IS OF THE ESSENCE on the repayment of this Note. There is no grace period on the repayment and payment of the amounts due hereunder.

Interest/Fee/Additional Compensation

(a) Maker shall pay to Holder a flat fee (“Fee”) of Four Thousand Five Hundred Dollars ($4,500.00), due and payable on the Maturity Date, which Fee shall be deemed earned at the time of the initial funding of the loan. If, and only if, this Note is repaid in full by wire transfer by 1:00 PM EDST, Monday, September 14, 2012, then the Fee shall be reduced by $500, so the total fee would be $4,000.

(b) In addition, Maker shall reimburse Holder three thousand dollars ($3,000.00) for expenses incurred in connection with this Note and prior notes; which amount shall be deemed earned and due at the time of the initial funding of the loan but may be paid on the Maturity Date.

- 1 -

Late Fee and Default Interest

As noted above, time is of the essence on the repayment of this Note. If this Note is not paid in full on or before the Maturity Date, there shall be a late fee of ten percent (10%) on the total Obligations or ($8,250). There shall accrue additional Late Fees of 10% of the total outstanding amounts owed hereunder (principal, plus interest, plus late fees) every ten (10) calendar days until repaid in full. In addition to the Late Fee(s), after the Maturity Date, this Note shall accrue interest from the Maturity Date at the rate of eighteen percent (18%) per annum, compounded daily until paid in full (“Default Interest”). Such Default Interest shall be on the outstanding principal amount, the interest due or accrued under the Note and the Late Fee(s).

Additional Representations, Warranties and Understandings

The Board of Directors of Maker and IHC and Dr. Harry Jacobson are aware of and have approved this Note. They recognize and agree that:

i. The timely repayment of this Loan will be made come hell or high water as a first priority for the Company.

ii. The proceeds of the Collateral will immediately be used to repay the Note, plus the Interest/Fees under this Note.

iv. If there is a default under this Note, any other amounts owed to Holder or any of its affiliates shall be immediately due and payable.

Events of Default

The following shall constitute Events of Default hereunder:

- 2 -

(c) If Maker directly or indirectly redirects any of the Collateral or proceeds of the Collateral without first paying all of the amounts due hereunder; and

(e) If any confession of judgment is filed or threatened to be filed against IHC, Innolog or Guarantor; and

(f) If any lien or levy is imposed on IHC, Innolog or Guarantor; and

(g) If any representation or warranty of Maker is untrue or any covenant of Maker is breached.

6. Remedies

- 3 -

Security

Maker hereby grants to Holder a security interest in the following accounts receivable of Maker or Innolog as listed below:

3. DFAS-IN/BVD/IN, Prime # W91WAW-09-C-0173 Contract Name: ODCSLOG; Account Number 5030-116 referred to by Maker as the “Army Receivable” (September billing); and

4. Any “milestone” payments in connection with any of the above-referenced contracts.

each, as may be more fully described in an Attachment A if any, and the proceeds therefrom from time to time (the “Collateral”). If for any reason such Collateral is compromised or becomes unavailable to Holder, then future accounts receivable under such above-referenced contracts shall be assigned to Holder and such additional accounts receivable shall be deemed part of the Collateral.

- 4 -

Priority of Repayment.

This Note shall be repaid by Maker prior to the repayment of any other debt of Maker other than normal operating expenses.

Miscellaneous

- 5 -

(f) Maker and Guarantor shall pay all costs and expenses associated with this Note, the loan and the transactions contemplated hereby and hereunder.

(h) Maker and Guarantor shall immediately upon request execute and deliver such other documents, agreements and instruments as requested by Holder to carry out the intent of this Note and related documents and to protect and perfect Holder’s interests in any collateral or otherwise.

(i) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Holder.

(j) Maker and Guarantor understand, acknowledge and agree that the occurrence of an Event of Default hereunder shall cause acceleration of not only this Note and the Obligations hereunder, but also acceleration of ANY OTHER OBLIGATIONS OWED TO PAYEE; AND THAT THERE ARE SIGNIFICANT LATE FEES HEREUNDER.

- 6 -

CONFESSED JUDGMENT

Maker, Innolog Holdings Corporation and Innovative Logistics Techniques, Inc., and Guarantor, jointly and severally (all three collectively hereinafter referred to as “Debtor”), promise to pay to the order of Holder the sum of ONE HUNDRED TEN THOUSAND DOLLARS AND ZERO CENTS ($110,000.00), plus any additional Late Fee(s), plus interest on the entire outstanding Obligations at 18% per annum, compounded daily, from the Maturity Date until paid, including and after the recording of this confession of judgment, plus all costs of collection, including all attorneys’ fees, and accounting fees less credit for any payments made.

Richard A. Golden, of 10627 Jones Street, #101B, Fairfax, Virginia 22030

Randall Borden, of 10627 Jones Street, #201A, Fairfax, Virginia 22030.

The undersigned’s said attorneys in fact are explicitly authorized, whether a suit, motion or action be pending for the indebtedness or not, to confess judgment in favor of the KAY M. GUMBINNER TRUST and Robert Gumbinner and Fred Gumbinner, trustees under a trust agreement dated January 9, 2008 (known as the Kay M. Gumbinner Trust), in the amount of $110,000.00, plus all costs and expenses of collection (including attorneys’ fees), plus additional late fees, plus interest from the date of judgment so confessed at the rate of 18% per annum, compounded monthly, or such lesser amount of principal plus interest as the creditor may be willing to accept.

Such confession of judgment may be made in the clerk’s office of the circuit court in the Commonwealth of Virginia, located at Fairfax, Virginia.

Furthermore, Maker and Guarantor, jointly and severally acknowledge the Holders right to pursue the guarantee, the Collateral, the security and the accounts receivable securing this debt and the Confessed Judgment. Debtor hereby expressly waives the benefit of any homestead exemption as to this debt and waives demand, protest, notice of presentment, notice of protest, and notice of non-payment and dishonor of this note.Debtor agrees this confessed judgment note is provided not in payment of, but as additional security for and evidence of obligations due to the Holder under the Note.

[Signature Page on Following Page]

- 7 -

	MAKER

	Innolog Holdings Corporation

	By:
		William P. Danielczyk
		Executive Chairman, Chairman
		& Authorized Representative

	Innovative Logistics Techniques, Inc.

	By:
		Richard Stewart
		President
		& Authorized Representative

WITNESSED



Name:

THIS NOTE IS ENDORSED BY GUARANTOR AS IF
GUARANTOR WAS THE MAKER HEROF

Dr. Ian Reynolds

- 8 -

EX-10.6 7 v326485_ex10-6.htm EXHIBIT 10.6

PROMISSORY NOTE

US$75,000.00 (Principal Amount)

September 21, 2012

Repayments & Special Terms

Principal and interest under this Note is due and payable on the earlier of (a) 1:00 PM EST on the business day following the receipt of the account receivables described in Section 6 hereof and (b) 2:00 PM EDST October 12, 2012 (“Maturity Date”). Furthermore, this Note shall be repaid as a first priority (other than to Atlas Advisors for repayment of its existing note) from any and all amounts received by Maker from ANY accounts receivable received by any of Maker subject only to normal operating expenses and regular current operating accounts payables until this Note is repaid in full. No payments are to be made to any other notes (other than to Atlas Advisors for repayment of its existing note) or government agencies prior to the repayment of this Note.

TIME IS OF THE ESSENCE on the repayment of this Note. There is no grace period on the repayment and payment of the amounts due hereunder.

Interest/Fee/Additional Compensation

(a) Maker shall pay to Holder a flat fee (“Fee”) of Four Thousand Five Hundred Dollars ($4,500.00), due and payable on the Maturity Date, which Fee shall be deemed earned at the time of the initial funding of the loan. If, and only if, this Note is repaid in full by wire transfer by 1:00 PM EDST, Monday, October 3, 2012, then the Fee shall be reduced by $500, so the total fee would be $4,000.

- 1 -

Late Fee and Default Interest

Additional Representations, Warranties and Understandings

The Board of Directors of Maker and IHC and Dr. Harry Jacobson are aware of and have approved this Note. They recognize and agree that:

i. The timely repayment of this Loan will be made come hell or high water as a first priority for the Company.

ii. The proceeds of the Collateral will immediately be used to repay the Note, plus the Interest/Fees under this Note.

iv. If there is a default under this Note, any other amounts owed by Maker or its affiliates to Holder or any of its affiliates shall be immediately due and payable.

Events of Default

The following shall constitute Events of Default hereunder:

- 2 -

(c) If Maker directly or indirectly redirects any of the Collateral or proceeds of the Collateral without first paying all of the amounts due hereunder; and

(e) If any confession of judgment is filed or threatened to be filed against IHC, Innolog or Guarantor; and

(f) If any lien or levy is imposed on IHC, Innolog or Guarantor; and

(g) If any representation or warranty of Maker is untrue or any covenant of Maker is breached.

6. Remedies

- 3 -

Security

Maker hereby grants to Holder a security interest in the following accounts receivable of Maker or Innolog as listed below:

3. DFAS-IN/BVD/IN, Prime # W91WAW-09-C-0173 Contract Name: ODCSLOG; Account Number 5030-116 referred to by Maker as the “Army Receivable” (September billing); and

4. Any “milestone” payments in connection with any of the above-referenced contracts.

each, as may be more fully described in an Attachment A if any, and the proceeds therefrom from time to time (the “Collateral”). If for any reason such Collateral is compromised or becomes unavailable to Holder, then future accounts receivable under such above-referenced contracts shall immediately and automatically be assigned to Holder and such additional accounts receivable shall be deemed part of the Collateral.

- 4 -

Priority of Repayment.

This Note shall be repaid by Maker prior to the repayment of any other debt of Maker other than normal operating expenses.

Miscellaneous

- 5 -

(f) Maker and Guarantor shall pay all costs and expenses associated with this Note, the loan and the transactions contemplated hereby and hereunder.

(i) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Holder.

(j) Maker and Guarantor understand, acknowledge and agree that the occurrence of an Event of Default hereunder shall cause acceleration of not only this Note and the Obligations hereunder, but also acceleration of ANY OTHER OBLIGATIONS OWED TO PAYEE; AND THAT THERE ARE SIGNIFICANT LATE FEES HEREUNDER.

- 6 -

CONFESSED JUDGMENT

Maker, Innolog Holdings Corporation and Innovative Logistics Techniques, Inc., and Guarantor, jointly and severally (all three collectively hereinafter referred to as “Debtor”), promise to pay to the order of Holder the sum of ONE HUNDRED TEN THOUSAND DOLLARS AND ZERO CENTS ($110,000.00), plus any additional Late Fee(s), plus interest on the entire outstanding Obligations at 18% per annum, compounded daily, from the Maturity Date until paid, including and after the recording of this confession of judgment, plus all costs of collection, including all attorneys’ fees, and accounting fees less credit for any payments made.

Richard A. Golden, of 10627 Jones Street, #101B, Fairfax, Virginia 22030

Randall Borden, of 10627 Jones Street, #201A, Fairfax, Virginia 22030.

The undersigned’s said attorneys in fact are explicitly authorized, whether a suit, motion or action be pending for the indebtedness or not, to confess judgment in favor of the KAY M. GUMBINNER TRUST and Robert Gumbinner and Fred Gumbinner, trustees under a trust agreement dated January 9, 2008 (known as the Kay M. Gumbinner Trust), in the amount of $110,000.00, plus all costs and expenses of collection (including attorneys’ fees), plus additional late fees, plus interest from the date of judgment so confessed at the rate of 18% per annum, compounded daily, or such lesser amount of principal plus interest as the creditor may be willing to accept.

Such confession of judgment may be made in the clerk’s office of the circuit court in the Commonwealth of Virginia, located at Fairfax, Virginia.

Furthermore, Maker and Guarantor, jointly and severally acknowledge the Holders right to pursue the guarantee, the Collateral, the security and the accounts receivable securing this debt and the Confessed Judgment. Debtor hereby expressly waives the benefit of any homestead exemption as to this debt and waives demand, protest, notice of presentment, notice of protest, and notice of non-payment and dishonor of this note.Debtor agrees this confessed judgment note is provided not in payment of, but as additional security for and evidence of obligations due to the Holder under the Note.

[Signature Page on Following Page]

- 7 -

	MAKER

	Innolog Holdings Corporation

	By:
		William P. Danielczyk
		Executive Chairman, Chairman
		& Authorized Representative

	Innovative Logistics Techniques, Inc.

	By:
		Richard Stewart
		President
		& Authorized Representative

WITNESSED



Name:

THIS NOTE IS ENDORSED BY GUARANTOR AS IF
GUARANTOR WAS THE MAKER HEROF

Dr. Ian Reynolds

- 8 -

EX-10.7 8 v326485_ex10-7.htm EXHIBIT 10.7

CONFESSED JUDGMENT PROMISSORY NOTE WITH SECURITY

US$100,000.00

July 9, 2012

FOR VALUE RECEIVED, the undersigned, Innolog Holdings Corporation, a Nevada Corporation and a foreign corporation doing business in Virginia, and Innovative Logistics Techniques, Inc., a Virginia corporation (“Innolog”), with principal executive offices are located at 4000 Legato Road, Suite 830, Fairfax, Virginia 22033, telephone number is (703) 766-1412, fax number is (703) 766-1425 and five additional offices located in Washington D.C., Tennessee and Florida (together, the “Makers”), promises to pay to Evan Gappelberg and/or Atlas Advisers, LLC (the “Payee”), and Guarantor, Dr. Ian Reynolds (“Guarantor”) guarantees such performance, at such place as the Payee may later designate in writing, in lawful money of the United States, the principal sum of ONE HUNDRED THOUSAND & 00/100 United States Dollars ($100,000.00) (the “Principal Amount” as further defined herein) in accordance with this secured Promissory Note (the “Note”) under the terms set forth herein.

Principal Amount:

The Principal Amount is ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00) (“Principal Amount”).

Maturity Date/Pre-payment:

The maturity date (“Maturity Date”) is fifteen (15) days after the receipt of the principal amount hereunder. The Makers and Guarantor shall have the right to prepay at any time and from time to time, in advance of the respective Maturity Date, without premium or penalty (but the entire Fee shall be due and payable), all or part of the then outstanding Principal Amount and other amounts due and owing. Each payment shall be applied first to the principal balance due. The Maturity Date may be extended with the approval of all parties.

Rate of Interest/Fee:

Makers shall pay to Payee a flat fee (“Fee”) of TEN THOUSAND & 00/100 DOLLARS ($10,000.00), due and payable on or before the Maturity Date.

Additional Compensation:

Reserved.

Late Fee/ Extension:

If this Note is not paid in full within three (3) business days of the Maturity Date, a late fee (“Late Fee”) of FIFTEEN THOUSAND & 00/100 DOLLARS ($15,000.00) shall be due and owing and paid at the time the Note is extended, in which case, Makers and Guarantor shall have an additional twelve (12) days from such date in which to pay the total amount owed.

Security Interest

Makers shall grant to Payee a security interest in the specific monthly accounts receivable of Makers or Innolog as listed below:

N0017-08-C-20423

3018

ODCSLOG

NAVY

6/12

- 1 -

(the “Collateral”). Makers and Guarantor shall execute and promptly deliver such documents and instruments as Payee may request from time to time to secure, evidence and perfect Payee's security interest and relative priority in the Collateral.

In addition, this Note is being secured by a personal guarantee of Dr. Ian Reynolds, whose address is as follows: 450 Medical Center Drive, Suite 206, Webster, TX 77598.

Events of Default

The following shall constitute Events of Default hereunder:

(a) If Makers and Guarantor default in the payment of any amount due on this Note when due or defaults by failing to perform any of the other terms and conditions of the Note; and

(b) If Makers and Guarantor shall (i) make a general assignment for the benefit of creditors, or (ii) apply for or consent to the appointment of a receiver, trustee or liquidator for itself or all or a substantial part of its assets, or (iii) be adjudicated a bankrupt or insolvent, or (iv) file a voluntary petition in bankruptcy or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether Federal or state) relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding (whether Federal or state) relating to relief of debtors, or (v) suffer or permit to continue unstayed and in effect for sixty (60) consecutive days any judgment, decree or order entered by a court of competent jurisdiction, that approves an involuntary petition seeking reorganization of Makers and/or Guarantor, or appoints, pursuant to such a petition, a receiver, trustee or liquidator for it or all or a substantial part of its assets.

Remedies

(a) Upon the happening of an Event of Default, Payee may, in Payee's sole and absolute discretion and without notice or demand to Makers and Guarantor, declare the entire amount of principal and flat fees thereon remaining outstanding hereunder immediately due and payable, whereupon, the same shall forthwith become and be due and payable without any presentment, demand or notice of any kind, all of which are expressly waived by Makers and Guarantor.

(b) Upon an event of default, all principal amounts outstanding shall bear interest at the default interest rate of eighteen percent (18%) per annum until paid in full, which shall be in addition to any Late Fees owed.

9. Miscellaneous

(a) This Note shall be deemed to be made and entered into under the laws of the Commonwealth of Virginia and jurisdiction shall be proper in a court of competent jurisdiction in Fairfax County, Virginia. The Note shall be construed and enforced in accordance with the laws of the Commonwealth of Virginia, but not with respect to the law of conflicts.

(b) This Note shall be binding upon Makers and Guarantor, as guarantor, and Makers’ and Guarantor’s successors and assigns and shall inure to the benefit of Payee and Payee's successors and assigns; and each reference herein to Makers and Guarantor or to Payee shall, except where the context shall otherwise require, be deemed to include its respective successors and assigns. Notwithstanding the foregoing, Makers and Guarantor shall not have any right to assign his obligations hereunder without Payee's prior written consent and Payee may not assign its interests hereunder without Makers’ and Guarantor’s prior written consent.

- 2 -

(c) Any failure by Payee to exercise any right or remedy hereunder shall not constitute a waiver of the right to exercise the same or any other right or remedy at any subsequent time, and no single or partial exercise of any right or remedy shall preclude other or further exercise of the same or any other right or remedy.

(d) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Makers and Guarantor and Payee.

(e) The Makers and Guarantor of this Note hereby waive the benefit of their homestead exemption as to this debt and agree to pay all reasonable expenses incurred in collecting same including up to 25% attorney's fees of the remaining balance owed, if this Note is placed in the hands of an attorney for collection, and interest at the of eighteen percent (18%) per annum from date of default.

IMPORTANT NOTICE

THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.

- 3 -

IN WITNESS WHEREOF, intending to be legally bound, Makers and Guarantor have caused this Note to be executed as of the day and year first above written by its duly authorized and empowered officer or representative.

Innolog Holdings Corporation, Maker		Innovative Logistics, Techniques, Inc., Maker

By:		By:
	William P. Danielczyk, Chairman		Richard Stewart, President
Or by Eric Wagner, Authorized Representative

By:
	Dr. Ian Reynolds, Guarantor

- 4 -

*******************************************************************************************************************************************

TO THE CLERK OF THE CIRCUIT COURT OF FAIRFAX COUNTY, VIRGINIA:

GREETINGS: Be it known to you that the parties signatories hereto are justly indebted to Evan Gappelberg and/or Atlas Advisers, LLC pursuant to the terms and conditions as stated above in the sum of ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00), plus late fees, interest on the principal amount outstanding at 18% per annum from June 23, 2012 or date of default, until paid and up to 25% attorney's fees of the remaining balance due, as to which debt is waived the benefit of the Homestead Exemptions; and do hereby constitute Terry C. Legum, Esquire, and/or Adam R. Wilk, Esquire, as their true and lawful attorney in fact, and with full power and authority hereby given to appear before you in your said office for him to confess judgment before you therein against the said parties signatories hereto, pursuant to the terms and conditions as stated above in favor of the payee of this Note, or assigns, for said sum of money with late fees and interest thereon, and the Makers and Guarantor further agrees to pay all expenses incurred in collecting same, including up to 25% attorney's fees of the remaining principal balance due at the rate of eighteen percent (18%) per annum from Jun 23, 2012 or date of default, for the collection of said Note and for which the Makers and Guarantor authorized said attorney in fact to confess judgment against the undersigned, with waiver of the Homestead and all other exemptions.

IMPORTANT NOTICE

Innolog Holdings Corporation, Maker		Innovative Logistics, Techniques, Inc., Maker

By:		By:
	William P. Danielczyk, Chairman		Richard Stewart, President
Or by: Eric Wagner, Authorized Representative

By:
	Dr. Ian Reynolds, Guarantor

- 5 -

EX-10.8 9 v326485_ex10-8.htm EXHIBIT 10.8

CONFESSED JUDGMENT PROMISSORY NOTE WITH SECURITY

US$ 100,000.00

August 7, 2012

Principal Amount:

The Principal Amount is ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00) (“Principal Amount”).

Maturity Date/Pre-payment:

Rate of Interest/Fee:

Makers shall pay to Payee a flat fee (“Fee”) of TEN THOUSAND FIVE HUNDRED & 00/100 DOLLARS ($10,000.00), due and payable on or before the Maturity Date.

Additional Compensation:

Reserved.

Late Fee/ Extension:

If this Note is not paid in full within one (1) business days of the Maturity Date, a late fee (“Late Fee”) of FIFTEEN THOUSAND & 00/100 DOLLARS ($15,000.00) shall be due and owing and paid at the time the Note is extended, in which case, Makers and Guarantor shall have an additional twelve (12) days from such date in which to pay the total amount owed.

Security Interest

Makers shall grant to Payee a security interest in the specific monthly accounts receivable of Makers or Innolog as listed below:

N0017-08-C-20423

3018

ODCSLOG

NAVY

6/12

- 1 -

In addition, this Note is being secured by a personal guarantee of Dr. Ian Reynolds, whose address is as follows: 450 Medical Center Drive, Suite 206, Webster, TX 77598.

7. Events of Default

The following shall constitute Events of Default hereunder:

(a) If Makers and Guarantor default in the payment of any amount due on this Note when due or defaults by failing to perform any of the other terms and conditions of the Note; and

8. Remedies

9. Miscellaneous

- 2 -

(d) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Makers and Guarantor and Payee.

IMPORTANT NOTICE

- 3 -

Innolog Holdings Corporation, Maker		Innovative Logistics, Techniques, Inc., Maker

By:		By:
	William P. Danielczyk, Chairman		Richard Stewart, President
Or by Eric Wagner, Authorized Representative

By:
	Dr. Ian Reynolds, Guarantor

- 4 -

***********************************************************************************************************************************************

TO THE CLERK OF THE CIRCUIT COURT OF FAIRFAX COUNTY, VIRGINIA:

GREETINGS: Be it known to you that the parties signatories hereto are justly indebted to Evan Gappelberg and/or Atlas Advisers, LLC pursuant to the terms and conditions as stated above in the sum of ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00), plus late fees, interest on the principal amount outstanding at 18% per annum from August 23, 2012 or date of default, until paid and up to 25% attorney's fees of the remaining balance due, as to which debt is waived the benefit of the Homestead Exemptions; and do hereby constitute Terry C. Legum, Esquire, and/or Adam R. Wilk, Esquire, as their true and lawful attorney in fact, and with full power and authority hereby given to appear before you in your said office for him to confess judgment before you therein against the said parties signatories hereto, pursuant to the terms and conditions as stated above in favor of the payee of this Note, or assigns, for said sum of money with late fees and interest thereon, and the Makers and Guarantor further agrees to pay all expenses incurred in collecting same, including up to 25% attorney's fees of the remaining principal balance due at the rate of eighteen percent (18%) per annum from August 23, 2012 or date of default, for the collection of said Note and for which the Makers and Guarantor authorized said attorney in fact to confess judgment against the undersigned, with waiver of the Homestead and all other exemptions.

IMPORTANT NOTICE

Innolog Holdings Corporation, Maker		Innovative Logistics, Techniques, Inc., Maker

By:		By:
	William P. Danielczyk, Chairman		Richard Stewart, President
Or by Eric Wagner, Authorized Representative

By:
	Dr. Ian Reynolds, Guarantor

- 5 -

EX-10.9 10 v326485_ex10-9.htm EXHIBIT 10.9

CONFESSED JUDGMENT PROMISSORY NOTE WITH SECURITY

US$ 100,000.00

August 23, 2012

Principal Amount:

The Principal Amount is ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00) (“Principal Amount”).

Maturity Date/Pre-payment:

The maturity date (“Maturity Date”) is September 14, 2012. The Makers and Guarantor shall have the right to prepay at any time and from time to time, in advance of the respective Maturity Date, without premium or penalty (but the entire Fee shall be due and payable), all or part of the then outstanding Principal Amount and other amounts due and owing. Each payment shall be applied first to the principal balance due. The Maturity Date may be extended with the approval of all parties.

Rate of Interest/Fee:

Makers shall pay to Payee a flat fee (“Fee”) of FIFTEEN THOUSAND & 00/100 DOLLARS ($15,000.00), due and payable on or before the Maturity Date.

Additional Compensation:

Reserved.

Late Fee/ Extension:

Security Interest

Makers shall grant to Payee a security interest in the specific monthly accounts receivable of Makers or Innolog as listed below:

N0017-08-C-20423

3018

ODCSLOG

NAVY

9/12

- 1 -

In addition, this Note is being secured by a personal guarantee of Dr. Ian Reynolds, whose address is as follows: 450 Medical Center Drive, Suite 206, Webster, TX 77598.

Events of Default

The following shall constitute Events of Default hereunder:

(a) If Makers and Guarantor default in the payment of any amount due on this Note when due or defaults by failing to perform any of the other terms and conditions of the Note; and

8. Remedies

9. Miscellaneous

- 2 -

(d) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Makers and Guarantor and Payee.

IMPORTANT NOTICE

- 3 -

Innolog Holdings Corporation, Maker		Innovative Logistics, Techniques, Inc., Maker

By:		By:
	William P. Danielczyk, Chairman		Richard Stewart, President
Or by Eric Wagner, Authorized Representative

By:
	Dr. Ian Reynolds, Guarantor

- 4 -

********************************************************************************************************************************************

TO THE CLERK OF THE CIRCUIT COURT OF FAIRFAX COUNTY, VIRGINIA:

GREETINGS: Be it known to you that the parties signatories hereto are justly indebted to Evan Gappelberg and/or Atlas Advisers, LLC pursuant to the terms and conditions as stated above in the sum of ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00), plus late fees, interest on the principal amount outstanding at 18% per annum from August 23, 2012 or date of default, until paid and up to 25% attorney's fees of the remaining balance due, as to which debt is waived the benefit of the Homestead Exemptions; and do hereby constitute Terry C. Legum, Esquire, and/or Adam R. Wilk, Esquire, as their true and lawful attorney in fact, and with full power and authority hereby given to appear before you in your said office for him to confess judgment before you therein against the said parties signatories hereto, pursuant to the terms and conditions as stated above in favor of the payee of this Note, or assigns, for said sum of money with late fees and interest thereon, and the Makers and Guarantor further agrees to pay all expenses incurred in collecting same, including up to 25% attorney's fees of the remaining principal balance due at the rate of eighteen percent (18%) per annum from August 23, 2012 or date of default, for the collection of said Note and for which the Makers and Guarantor authorized said attorney in fact to confess judgment against the undersigned, with waiver of the Homestead and all other exemptions.

IMPORTANT NOTICE

Innolog Holdings Corporation, Maker		Innovative Logistics, Techniques, Inc., Maker

By:		By:
	William P. Danielczyk, Chairman		Richard Stewart, President
Or by Eric Wagner, Authorized Representative

By:
	Dr. Ian Reynolds, Guarantor

- 5 -

EX-10.10 11 v326485_ex10-10.htm EXHIBIT 10.10

CONFESSED JUDGMENT PROMISSORY NOTE WITH SECURITY

US$ 100,000.00

September 21, 2012

Principal Amount:

The Principal Amount is ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00) (“Principal Amount”).

Maturity Date/Pre-payment:

The maturity date (“Maturity Date”) is ten (10) business days after receipt of the Principal Amount. The Makers and Guarantor shall have the right to prepay at any time and from time to time, in advance of the respective Maturity Date, without premium or penalty (but the entire Fee shall be due and payable), all or part of the then outstanding Principal Amount and other amounts due and owing. Each payment shall be applied first to the principal balance due. The Maturity Date may be extended with the approval of all parties.

Rate of Interest/Fee:

Makers shall pay to Payee a flat fee (“Fee”) of TEN THOUSAND & 00/100 DOLLARS ($10,000.00), due and payable on or before the Maturity Date.

Additional Compensation:

If Maker does not send securities due to Holder by the Maturity Date an additional $5,000 shall be due hereunder. Warrants are being handled separately.

Late Fee/ Extension:

If this Note is not paid in full within one (1) business days of the Maturity Date, a late fee (“Late Fee”) of TEN THOUSAND & 00/100 DOLLARS ($10,000.00) shall be due and owing and paid at the time the Note is extended, in which case, Makers and Guarantor shall have an additional twelve (12) days from such date in which to pay the total amount owed.

Security Interest

Makers shall grant to Payee a security interest in the specific monthly accounts receivable of Makers or Innolog as listed below:

N0017-08-C-20423

3018

ODCSLOG

NAVY

10/12

- 1 -

In addition, this Note is being secured by a personal guarantee of Dr. Ian Reynolds, whose address is as follows: 450 Medical Center Drive, Suite 206, Webster, TX 77598.

7. Events of Default

The following shall constitute Events of Default hereunder:

(a) If Makers and Guarantor default in the payment of any amount due on this Note when due or defaults by failing to perform any of the other terms and conditions of the Note; and

8. Remedies

9. Miscellaneous

- 2 -

(d) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Makers and Guarantor and Payee.

IMPORTANT NOTICE

- 3 -

Innolog Holdings Corporation, Maker		Innovative Logistics, Techniques, Inc., Maker

By:		By:
	William P. Danielczyk, Chairman		Richard Stewart, President
Or by Eric Wagner, Authorized Representative

By:
	Dr. Ian Reynolds, Guarantor

- 4 -

********************************************************************************************************************

TO THE CLERK OF THE CIRCUIT COURT OF FAIRFAX COUNTY, VIRGINIA:

GREETINGS: Be it known to you that the parties signatories hereto are justly indebted to Evan Gappelberg and/or Atlas Advisers, LLC pursuant to the terms and conditions as stated above in the sum of ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00), plus late fees, interest on the principal amount outstanding at 18% per annum from October 15, 2012 or date of default, until paid and up to 25% attorney's fees of the remaining balance due, as to which debt is waived the benefit of the Homestead Exemptions; and do hereby constitute Terry C. Legum, Esquire, and/or Adam R. Wilk, Esquire, as their true and lawful attorney in fact, and with full power and authority hereby given to appear before you in your said office for him to confess judgment before you therein against the said parties signatories hereto, pursuant to the terms and conditions as stated above in favor of the payee of this Note, or assigns, for said sum of money with late fees and interest thereon, and the Makers and Guarantor further agrees to pay all expenses incurred in collecting same, including up to 25% attorney's fees of the remaining principal balance due at the rate of eighteen percent (18%) per annum from October 15, 2012 or date of default, for the collection of said Note and for which the Makers and Guarantor authorized said attorney in fact to confess judgment against the undersigned, with waiver of the Homestead and all other exemptions.

IMPORTANT NOTICE

Innolog Holdings Corporation, Maker		Innovative Logistics, Techniques, Inc., Maker

By:		By:
	William P. Danielczyk, Chairman		Richard Stewart, President
Or by Eric Wagner, Authorized Representative

By:
	Dr. Ian Reynolds, Guarantor

- 5 -

EX-10.11 12 v326485_ex10-11.htm EXHIBIT 10.11

PROMISSORY NOTE

US$65,000.00

September 28, 2012

FOR VALUE RECEIVED, the undersigned, Innolog Holdings Corporation, a Nevada Corporation, (“Innolog” or “Maker”), with principal executive offices are located at 4000 Legato Road, Suite 830, Fairfax, Virginia 22033, promises to pay to Michael Kane (the “Payee”), at such place as the Payee may later designate in writing, in lawful money of the United States, the principal sum of SIXTY-FIVE THOUSAND and 00/100 United States dollars ($65,000.00) (the “Principal Amount” as further defined herein) in accordance with this secured promissory note (the “Note”) under the terms set forth herein. This Note is being entered into in connection with other similar Notes (collectively, the “Reliant Collateral Notes”). The loans pursuant to the Reliant Collateral Notes are being made to provide funds for the Maker to post collateral for a loan from Reliant Bank to several individuals, the proceeds of which are being used to directly or indirectly benefit Maker.

Principal Amount:

The Principal Amount is SIXTY-FIVE THOUSAND and 00/100 dollars ($65,000.00) (“Principal Amount”).

Maturity Date/Pre-payment:

The maturity date (“Maturity Date”) is December 28, 2012; provided, however, that Maker shall make the following payments: $15,000 on or before October 8, 2012, $25,000 by November 8, 2012 and $25,000 by December 8, 2012. This Note may be prepaid in whole or in part at any time without any penalty. Payments shall be applied first to principal and then to interest.

Rate of Interest/Fee:

Instead of any “interest,” Maker shall pay to Payee a flat fee (“Fee”) of a warrant to purchase 132,000 shares of common stock of Maker, exercisable within five years of the date hereof with a strike price of $0.01 per share. The terms of such warrant shall be the same standard terms as similar warrants previously issued by Maker.

Security

Maker shall cause its wholly owned subsidiary, Innovative Logistics Techniques, Inc., to grant to Holder a security interest in the following accounts receivable of Innovative Logistics Techniques, Inc.:

DFAS-IN/BVD/IN, Prime # W91WAW-09-C-0173 Contract Name: ODCSLOG; Account Number 5030-116 referred to by Maker as the “Army Receivable”

and the proceeds therefrom from time to time (the “Collateral”). Holder understands and agrees that such Collateral may be pledged to one or more other parties that may have a prior claim in such Collateral.

- 1 -

Events of Default

The following shall constitute Events of Default hereunder:

(a) If Maker defaults in the payment of any amount due on this Note when due; and

(b) If Maker shall (i) make a general assignment for the benefit of creditors, or (ii) apply for or consent to the appointment of a receiver, trustee or liquidator for itself or all or a substantial part of its assets, or (iii) be adjudicated a bankrupt or insolvent, or (iv) file a voluntary petition in bankruptcy or file a petition or an answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether Federal or state) relating to relief of debtors, or admit (by answer, by default or otherwise) the material allegations of a petition filed against it in any bankruptcy, reorganization, insolvency or other proceeding (whether Federal or state) relating to relief of debtors, or (v) suffer or permit to continue unstayed and in effect for sixty (60) consecutive days any judgment, decree or order entered by a court of competent jurisdiction, that approves an involuntary petition seeking reorganization of Maker, or appoints, pursuant to such a petition, a receiver, trustee or liquidator for it or all or a substantial part of its assets.

Remedies

(a) Upon the happening of an Event of Default, Payee may, in Payee's sole and absolute discretion and without notice or demand to Maker, declare the entire amount of principal and interest thereon remaining outstanding hereunder immediately due and payable, whereupon, the same shall forthwith become and be due and payable without any presentment, demand or notice of any kind, all of which are expressly waived by Maker.

(b) If an Event of Default shall occur, the Maker shall pay the Payee, on demand by the Payee, all reasonable costs and expenses incurred by the Payee in connection with the collection and enforcement of this Note, including attorneys fees.

(c) Upon an event of default, all amounts outstanding shall bear interest at the default interest rate of eight percent 8% per annum simple interest until paid in full.

7. Miscellaneous

(b) This Note shall be binding upon Maker and Maker's successors and assigns and shall inure to the benefit of Payee and Payee's successors and assigns; and each reference herein to Maker or to Payee shall, except where the context shall otherwise require, be deemed to include its respective successors and assigns. Notwithstanding the foregoing, Maker shall not have any right to assign his obligations hereunder without Payee's prior written consent and Payee may not assign its interests hereunder without Maker’s prior written consent.

(d) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Payee.

- 2 -

IN WITNESS WHEREOF, intending to be legally bound, Maker has caused this Promissory Note to be executed as of the day and year first above written by its duly authorized and empowered officer or representative.

Innolog Holdings Corporation, Maker

By:
	William P. Danielczyk, Chairman
Or by: Eric Wagner, Authorized Representative

ACKNOWLEDGED AND AGREED
With Respect to Security Interest

Innovative Logistics Techniques, Inc.

By:
	Richard Stewart,
	President

- 3 -

EX-10.12 13 v326485_ex10-12.htm EXHIBIT 10.12

PROMISSORY NOTE

US$25,000.00

September 28, 2012

FOR VALUE RECEIVED, the undersigned, Innolog Holdings Corporation, a Nevada Corporation, (“Innolog” or “Maker”), with principal executive offices are located at 4000 Legato Road, Suite 830, Fairfax, Virginia 22033, promises to pay to Bruce Riddle (the “Payee”), at such place as the Payee may later designate in writing, in lawful money of the United States, the principal sum of TWENTY-FIVE THOUSAND and 00/100 United States dollars ($25,000.00) (the “Principal Amount” as further defined herein) in accordance with this secured promissory note (the “Note”) under the terms set forth herein. This Note is being entered into in connection with other similar Notes (collectively, the “Reliant Collateral Notes”). The loans pursuant to the Reliant Collateral Notes are being made to provide funds for the Maker to post collateral for a loan from Reliant Bank to several individuals, the proceeds of which are being used to directly or indirectly benefit Maker.

Principal Amount:

The Principal Amount is TWENTY-FIVE THOUSAND and 00/100 dollars ($25,000.00) (“Principal Amount”).

Maturity Date/Pre-payment:

The maturity date (“Maturity Date”) is November 28, 2012; provided, however, that Maker shall make the following payments: $12,500 on or before October 28, 2012, and $12,500 by November 28, 2012. This Note may be prepaid in whole or in part at any time without any penalty. Payments shall be applied first to principal and then to interest.

Rate of Interest/Fee:

Maker shall pay to Payee a flat fee (“Fee”) of (a) ten percent (10%) of the principal amount ($2,500.00), due and payable on the Maturity Date; plus (b) a warrant to purchase 50,000 shares of common stock of Maker, exercisable within five years of the date hereof with a strike price of $0.01 per share. The terms of such warrant shall be the same standard terms as similar warrants previously issued by Maker.

Security

Maker shall cause its wholly-owned subsidiary, Innovative Logistics Techniques, Inc. to grant to Holder a security interest in the following accounts receivable of Innovative Logistics Techniques, Inc.:

DFAS-IN/BVD/IN, Prime # W91WAW-09-C-0173 Contract Name: ODCSLOG; Account Number 5030-116 referred to by Maker as the “Army Receivable”

- 1 -

5. Events of Default

The following shall constitute Events of Default hereunder:

(a) If Maker defaults in the payment of any amount due on this Note when due; and

6. Remedies

(c) Upon an event of default, all amounts outstanding shall bear interest at the default interest rate of eight percent 8% per annum simple interest until paid in full.

7. Miscellaneous

(d) None of the terms and provisions hereof may be waived, altered, modified, or amended except by an agreement in writing signed by Maker and Payee.

- 2 -

Innolog Holdings Corporation, Maker

By:
	William P. Danielczyk, Chairman
Or by: Eric Wagner, Authorized Representative

ACKNOWLEDGED AND AGREED
With Respect to Security Interest

Innovative Logistics Techniques, Inc.

By:
	Richard Stewart,
	President

- 3 -

EX-31.1 14 v326485_ex31-1.htm EXHIBIT 31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, William P. Danielczyk, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Innolog Holdings Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2012

/s/ William P. Danielczyk
William P. Danielczyk, Principal Executive Officer

EX-31.2 15 v326485_ex31-2.htm EXHIBIT 31.2

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Eric Wagner, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Innolog Holdings Corporation;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2012

/s/Eric Wagner
Eric Wagner, Chief Financial Officer

EX-32.1 16 v326485_ex32-1.htm EXHIBIT 32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Innolog Holdings Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, William P. Danielczyk, Executive Chairman of the Board and Principal Executive Officer of the Company, and Eric Wagner, Chief Financial Officer of the Company, certify, pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ William P. Danielczyk
William P. Danielczyk
Principal Executive Officer
November 14, 2012

/s/ Eric Wagner
Eric Wagner
Chief Financial Officer
November 14, 2012

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Note 1: Organization and Nature of Business and Basis of Presentation Organization and Nature of BusinessInnolog Holdings Corporation (“Holdings” or “Innolog”) was formed as a holding company on March 23, 2009 for the purpose of acquiring companies that provide services primarily to federal government entities. Its wholly owned subsidiaries are Innolog Group Corporation and Innovative Logistics Techniques, Inc. (“Innovative”). Holdings was previously a wholly owned subsidiary of Galen Capital Corporation (“Galen”). In June 2010, Holdings was spun out and the stockholders of Galen became the stockholders of Holdings. Innovative Logistics Techniques, Inc., a Virginia corporation, formed in March 1989, is a solutions oriented organization providing supply chain logistics and information technology solutions to clients in the public and private sector. Innovative''s services and solutions are provided to a wide variety of clients, including the Department of Defense, Department of Homeland Security and civilian agencies in the federal government and state and local municipalities, as well as selected commercial organizations. Innolog Holdings Corporation and its wholly owned subsidiary are referred to herein as the “Company.” Basis of Presentation<table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"><tr style="vertical-align: top;"><td style="width: 0px;"></td><td style="width: 0.25in;"></td><td style="text-align: justify;">The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.</td></tr></table> In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Accordingly, the results from operations for the nine months period ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. The unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2011 consolidated financial statements and footnotes thereto included in the Company''s SEC Form 10-K. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation

Note 2: Going Concern   The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial operating losses since inception, the Company has reported a net loss of $3,170,835 for the nine months ended September 30, 2012 and $2,179,852 for the nine months ended September 30, 2011. As of September 30, 2012 the Company has reported an accumulated deficit of $15,439,209, had a stockholders’ deficiency (defined as total assets minus total liabilities) of $12,111,911 and a working capital deficit (current liabilities minus current assets) of $10,248,082. There are delinquent claims and obligations, such as payroll taxes, employee income tax withholdings, employee benefit plan contributions, delinquent loans payable and accounts payable that could ultimately cause the Company to cease operations.   The Company anticipates it may not have sufficient cash flows to fund its operations over the next twelve months without the completion of additional financing. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amounts and classification of liabilities that might result should the Company be unable to continue as a going concern.   The report of the Company’s independent registered public accounting firm relating to the December 31, 2011 consolidated financial statements states that there is substantial doubt about the Company’s ability to continue as a going concern.   Management believes that actions presently being taken such as continued expense reduction, the implementation of a renewed sales effort and the capital financing efforts of the Company will help to enhance the Company’s operating and financial weaknesses.

Note 3: Summary of Significant Accounting Policies   Principles of Consolidation:   The unaudited condensed consolidated financial statements include the assets, liabilities and operating results of Holdings and it’s wholly owned subsidiary since the date of the acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation.   Use of Estimates:   Management uses estimates and assumptions in preparing these financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates.   Cash and cash equivalents:   For the purpose of the statements of cash flows, Company has considered all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.   Reclassifications:   Certain items in prior unaudited condensed consolidated financial statements are reclassified to conform to the current presentation. These reclassifications had no effect on reported net loss.   Contract Revenue Recognition:   Revenue on cost-plus-fee contracts is recognized to the extent of costs incurred plus provisional rates for fringe, overhead and applied G&A, plus a percentage of fees earned. On fixed price service contracts, revenue is recognized using straight line over the life of the project. Revenue on time-and-materials contracts is recognized at contractual rates as hours and out of pocket expenses are incurred. Anticipated losses on contracts are recognized in the period they are first determined.   Concentration of Credit Risk:   The Company maintains its cash, which, at times may exceed federally insured limits, in bank deposit accounts with a high credit quality financial institution. The Company believes it is not exposed to any significant credit risk with regards to those accounts. Accounts receivable principally consist of amounts due from the federal government and large prime federal government contractors. Management believes associated credit risk is not significant.   Allowance for Doubtful Accounts:   The Company provides an allowance for doubtful accounts equal to the estimated collection losses that will be incurred in collection of all receivables. Estimated losses are based on historical collection experience coupled with review of the current status of existing receivables. The allowance for doubtful accounts amounted to $35,590 at September 30, 2012 and December 31, 2011.   Property and Equipment:   Property and equipment are stated at cost and depreciated by the straight-line method over estimated useful lives which are as follows:   <table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.25in;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="text-align: justify; width: 35%; font-size: 10pt;" nowrap="nowrap">Office furniture and equipment</td> <td style="text-align: justify; width: 65%; font-size: 10pt;" nowrap="nowrap">3 to 7 years</td> </tr> <tr style="vertical-align: top;"> <td style="text-align: justify; font-size: 10pt;" nowrap="nowrap">Computer hardware and software</td> <td style="text-align: justify; font-size: 10pt;" nowrap="nowrap">2 to 5 years</td> </tr> </table>   Leasehold improvements and lease acquisition costs are amortized over the shorter of the life of the applicable lease or the life of the asset. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.   Long-Lived Assets:   The Company follows Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires those long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. An impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount. If impairment is indicated, the amount of the loss to be recorded is based on an estimate of the difference between the carrying amount and the fair value of the asset. Fair value is based upon discounted estimated cash flows expected to result from the use of the asset and its eventual disposition and other valuation methods.   Goodwill:   In accordance with FASB ASC 350, “Intangibles – Goodwill and Other”, goodwill is tested for impairment at least annually. There was no impairment loss recorded for the period ended September 30, 2012.   Income Taxes:   Effective January 1, 2009, the Company has adopted the provisions of FASB ASC 740, “Income Tax” which clarifies the accounting for uncertainty in tax positions. FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not to be sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position. The adoption of FASB ASC 740 had no effect on the Company’s financial position or results of operations. At September 30, 2012, the Company has no unrecognized tax benefits.   The Company files a consolidated federal income tax return. Income taxes are accounted for using the asset and liability method under FASB ASC 740 “Income Tax”, whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities, and their respective tax basis, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized as income in the period that includes the enactment date. Estimates of the realization of deferred tax assets are based on the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies.   The Company applies the provisions of FASB ASC 740, which clarifies the accounting for uncertainty in tax positions. FASB ASC 740 requires the recognition of the impact of a tax position in the financial statements if that position is more likely than not to be sustained on a tax return upon examination by the relevant taxing authority, based on the technical merits of the position. At September 30, 2012, the Company has no unrecognized tax benefits.   Stock Based Compensation:   The Company follows Accounting Standards Codification subtopic 718-10, Compensation (ASC 718-10”) which requires that all share-based payments to both employees and non employees be recognized in the income statement based on their fair values at the grant date and recognizes expense over the requisite service period.   Debt Issuance Costs:   Debt issuance costs are capitalized and amortized over the term of the related loan.   Fair Value Measurements:   FASB ASC 820, “Fair Value Measurements and Disclosures”, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:   Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the plan has the ability to access.   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0px;"></td> <td style="width: 0.5in;"></td> <td style="text-align: justify;">Level 2: Inputs to the valuation methodology include:</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 1.25in;"></td> <td style="width: 0.25in;">·</td> <td style="text-align: justify;">quoted prices for similar assets or liabilities in active markets;</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 1.25in;"></td> <td style="width: 0.25in;">·</td> <td style="text-align: justify;">quoted prices for identical or similar assets or liabilities in inactive markets;</td> </tr> </table> <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 1.25in;"></td> <td style="width: 0.25in;">·</td> <td style="text-align: justify;">inputs other than quoted prices that are observable for the assets or liability;</td> </tr> <tr style="vertical-align: top;"> <td> </td> <td>·</td> <td style="text-align: justify;">inputs that are derived principally from or corroborated by observable market data by correlation or other means.</td> </tr> </table>   If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.    <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0pt;"></td> <td style="width: 0.5in;"></td> <td style="text-align: justify;">Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.</td> </tr> </table>   The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.   The following is a description of the valuation methodologies used for assets and liabilities measured at fair value:   <table style="margin-top: 0pt; width: 100%; font: 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: top;"> <td style="width: 0px;"></td> <td style="width: 1in;"></td> <td style="text-align: justify;">The carrying values of accounts receivable, accounts payable, accrued expenses, notes payable, and the line of credit payable approximate fair value due to the short term maturities of these instruments.</td> </tr> </table>    The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.   Earnings (loss) per Share:   The Company follows Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share information. Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to the dilutive potential of shares of common stock outstanding during the period including stock options or warrants, using the treasury stock method (by using the average stock price for the period to determine the number of shares assumed to be purchased from the exercise of stock options or warrants), and convertible debt or convertible preferred stock, using the if-converted method. Diluted EPS excludes the dilutive potential of shares of common stock if their effect is anti-dilutive.   The computation of basic and diluted loss per share for the nine months ended September 30, 2012 and September 30, 2011 is equivalent since the Company reported a net loss and the effect of any common stock equivalents would be anti-dilutive.   Recent Accounting Pronouncements:   Management does not believe that any recently issued, but not yet effective accounting standards, if adopted, will have a material effect on the Company's unaudited condensed consolidated financial statements.

Note 4: Major Customers Revenues from prime contracts and subcontracts with U.S. Government agency customers in aggregate accounted for 100% of total revenues for the nine months ended September 30, 2012 and 2011.

Note 5: Accounts Receivable Accounts receivable consisted of the following as of September 30, 2012 and December 31, 2011: <table style="font: 10pt/normal times new roman, times, serif; width: 95%; margin-left: 0.25in; border-collapse: collapse; font-size-adjust: none; font-stretch: normal;" border="0" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="padding-bottom: 1pt;" nowrap="nowrap"></td> <td style="padding-bottom: 1pt;" nowrap="nowrap"></td> <td style="text-align: center; border-bottom-color: black; border-bottom-width: 1pt; border-bottom-style: solid;" colspan="2" nowrap="nowrap">September 30, 2012 (Unaudited)</td> <td style="padding-bottom: 1pt;" nowrap="nowrap"></td> <td style="padding-bottom: 1pt;" nowrap="nowrap"></td> <td style="text-align: center; border-bottom-color: black; border-bottom-width: 1pt; border-bottom-style: solid;" colspan="2" nowrap="nowrap">December 31, 2011</td> <td style="padding-bottom: 1pt;" nowrap="nowrap"></td> </tr> <tr style="vertical-align: bottom; background-color: #ccffcc;"> <td style="width: 74%; text-align: left;">Billed receivables</td> <td style="width: 1%;"></td> <td style="width: 1%; text-align: left;">$</td> <td style="width: 10%; text-align: right;">518,401</td> <td style="width: 1%; text-align: left;"></td> <td style="width: 1%;"></td> <td style="width: 1%; text-align: left;">$</td> <td style="width: 10%; text-align: right;">454,207</td> <td style="width: 1%; text-align: left;"></td> </tr> <tr style="vertical-align: bottom; background-color: white;"> <td style="text-align: left;">Reserve for bad debts</td> <td></td> <td style="text-align: left;"></td> <td style="text-align: right;">(35,590</td> <td style="text-align: left;">)</td> <td></td> <td style="text-align: left;"></td> <td style="text-align: right;">(35,590</td> <td style="text-align: left;">)</td> </tr> <tr style="vertical-align: bottom; background-color: #ccffcc;"> <td>Total</td> <td></td> <td style="text-align: left;">$</td> <td style="text-align: right;">482,811</td> <td style="text-align: left;"></td> <td></td> <td style="text-align: left;">$</td> <td style="text-align: right;">418,617</td> <td style="text-align: left;"></td> </tr> </table> Contract receivables from prime contracts and subcontracts with U.S. Government agency customers in aggregate accounted for 100% of total contract receivables at September 30, 2012 and December 31, 2011.

Note 6: Accounts Payable and Accrued Liability <div style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"></div> Accounts payable and accrued expenses at September 30, 2012 and December 31, 2011 consisted of the following: <table style="font: 10pt/normal times new roman, times, serif; width: 97%; margin-left: 19pt; border-collapse: collapse; font-size-adjust: none; font-stretch: normal;" cellspacing="0" cellpadding="0"> <tr style="vertical-align: bottom;"> <td style="text-align: center; font-size: 10pt;" nowrap="nowrap"></td> <td style="text-align: center; padding-bottom: 1pt; font: 10pt times new roman, times, serif;" nowrap="nowrap"></td> <td style="border-bottom: black 1pt solid; text-align: center; font: 10pt times new roman, times, serif;" colspan="2" nowrap="nowrap">September 30, 2012 (Unaudited)</td> <td style="text-align: center; padding-bottom: 1pt; font: 10pt times new roman, times, serif;" nowrap="nowrap"></td> <td style="text-align: center; padding-bottom: 1pt; font-size: 10pt;" nowrap="nowrap"></td> <td style="border-bottom: black 1pt solid; text-align: center; font-size: 10pt;" colspan="2" nowrap="nowrap">December 31, 2011</td> <td style="text-align: center; padding-bottom: 1pt; font-size: 10pt;" nowrap="nowrap"></td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="font-size: 10pt;"></td> <td style="font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="text-align: right; font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="text-align: right; font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: justify; width: 74%; font-size: 10pt;">Accounts payable</td> <td style="width: 1%; font-size: 10pt;"></td> <td style="text-align: left; width: 1%; font-size: 10pt;">$</td> <td style="text-align: right; width: 10%; font-size: 10pt;">2,853,735</td> <td style="text-align: left; width: 1%; font-size: 10pt;"></td> <td style="width: 1%; font-size: 10pt;"></td> <td style="text-align: left; width: 1%; font-size: 10pt;">$</td> <td style="text-align: right; width: 10%; font-size: 10pt;">2,525,149</td> <td style="text-align: left; width: 1%; font-size: 10pt;"></td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify; font-size: 10pt;">Accrued liabilities</td> <td style="font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="text-align: right; font-size: 10pt;">1,774,714</td> <td style="text-align: left; font-size: 10pt;"></td> <td style="font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="text-align: right; font-size: 10pt;">1,240,398</td> <td style="text-align: left; font-size: 10pt;"></td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: justify; font-size: 10pt;">Accrued interest- other</td> <td style="font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="text-align: right; font-size: 10pt;">492,382</td> <td style="text-align: left; font-size: 10pt;"></td> <td style="font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="text-align: right; font-size: 10pt;">532,211</td> <td style="text-align: left; font-size: 10pt;"></td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="text-align: justify; font-size: 10pt;">Accrued interest-related party</td> <td style="font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="text-align: right; font-size: 10pt;">395,904</td> <td style="text-align: left; font-size: 10pt;"></td> <td style="font-size: 10pt;"></td> <td style="text-align: left; font-size: 10pt;"></td> <td style="text-align: right; font-size: 10pt;">236,952</td> <td style="text-align: left; font-size: 10pt;"></td> </tr> <tr style="background-color: white; vertical-align: bottom;"> <td style="text-align: justify; padding-bottom: 1pt; font-size: 10pt;">Accrued salaries and benefits</td> <td style="padding-bottom: 1pt; font-size: 10pt;"></td> <td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"></td> <td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt;">3,504,464</td> <td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"></td> <td style="padding-bottom: 1pt; font-size: 10pt;"></td> <td style="border-bottom: black 1pt solid; text-align: left; font-size: 10pt;"></td> <td style="border-bottom: black 1pt solid; text-align: right; font-size: 10pt;">3,128,947</td> <td style="text-align: left; padding-bottom: 1pt; font-size: 10pt;"></td> </tr> <tr style="background-color: #ccffcc; vertical-align: bottom;"> <td style="padding-bottom: 2.5pt; font-size: 10pt;"></td> <td style="padding-bottom: 2.5pt; font-size: 10pt;"></td> <td style="border-bottom: black 2.5pt double; text-align: left; font-size: 10pt;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; font-size: 10pt;">9,021,199</td> <td style="text-align: left; padding-bottom: 2.5pt; font-size: 10pt;"></td> <td style="padding-bottom: 2.5pt; font-size: 10pt;"></td> <td style="border-bottom: black 2.5pt double; text-align: left; font-size: 10pt;">$</td> <td style="border-bottom: black 2.5pt double; text-align: right; font-size: 10pt;">7,663,657</td> <td style="text-align: left; padding-bottom: 2.5pt; font-size: 10pt;"></td> </tr> </table>

Note 7: Line of Credit   On June 14, 2011, Holdings renewed a credit agreement with Eagle Bank under which it may borrow up to $500,000. Borrowings under the agreement are guaranteed by seven individuals, who are directly or indirectly related to Holdings. The borrowings were due on August 26, 2012, if not demanded earlier. Interest is payable monthly at the bank’s prime rate (as defined) plus 1%. At September 30, 2012, the interest rate was 5.25%. The outstanding balance as of September 30, 2012 and December 31, 2011 is $0 and $497,570, respectively. This line of credit was paid in full and cancelled on September 28, 2012. <font size="2" style="font-family:times new roma