Related Party Transactions

6 Months Ended

Jun. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Note 10:   Related Party Transactions

Notes Payable:

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 June 30, 2011 and December 31, 2010 amounted to $1,499,384, collaterized by substantially all assets of the Borrowers and guaranteed by Galen. Repayment of the loan is due at the Lenders’ demand. In order to make the loan to the Borrowers, the Lenders borrowed $1,499,384 from Eagle Bank.  The promissory note to Eagle Bank has a maturity date of July 15, 2012 if not demanded earlier and interest is payable monthly at the bank’s prime rate (as defined) plus 1%.  Interest is directly paid by the Company to the bank on a monthly basis. At June 30, 2011, the interest rate was 5.25%. In addition to the interest due to the bank, on June 22, 2011, the Company granted warrants to the Lenders under which they may purchase 4,500,000 common shares of the Company’s common stock, with a strike price of $0.06 per share.  The warrants expire on June 30, 2016. The fair value of these warrants amounted to $45,000 and was amortized to interest expense during the six months ended June 30, 2011.  Total interest incurred on this loan amounted to approximately $38,000 during the six months ended June 30,, 2011 and 2010.

In March 2010, Galen assigned a note payable due to a director of the Company in the amount of $325,000 to the Company.  Of this amount $279,636 was treated as a dividend to Galen, which was the sole stockholder at the time, and $45,364 related to expenses incurred by Galen on behalf of the Company.  This note was due on June 30, 2010.  In March 2011, the note was amended. Principal  and interest of $32,500 are due on or prior to the maturity date of March 21, 2012. Warrants to purchase 325,000 of the Company’s common stock at a strike price of $.50 were granted in conjunction with this note. There was no interest incurred on this note during the three months ended June 30, 2010. A total of $32,500 of interest was accrued during the six months ended June 30, 2011.

As of June 30, 2011 and December 31, 2010, $385,000 and $160,000 were outstanding, respectively, on other notes payable to related parties. Maturity dates vary from April 10, 2011 to February 10, 2012. New loans totaled $265,000 for the six months ended June 30, 2011. These parties were also granted warrants to purchase 200,000 shares of Innolog common stock. The strike price to purchase the common stock is $0.50 per share with a 5 year expiration date. Interest is charged at a flat fee, as defined in each agreement. Additional interest is due upon default. Of these notes, $40,000 were in default as of June 30, 2011. Total interest incurred on these notes amounted to $34,715 during the six months ended June 30, 2011. Total interest accrued on these notes amounted to $63,722 and $37,705 as of June 30, 2011 and December 31, 2010, respectively.

Loans from Former Stockholder:

As of June 30, 2011 and December 31, 2010, $272,350 and $251,350, respectively, was outstanding on notes payable to a former stockholder. During the six months ended June 30, 2011 and June 30, 2010, interest of $34,757 and $52,867 respectively, was incurred on these notes. As of June 30, 2011 and December 31, 2010 $23,007 and $0, respectively, of interest was accrued on these notes. As of June 30, 2011, $224,850 of these notes are in default and carry a default interest rate of 15% per annum. The loans are currently being renegotiated.

Management Fees, Affiliate:

Pursuant to an Executive Management Agreement with Galen entered into on April 1, 2009, the Company was being charged a management fee of $100,000 per month limited to15% of the gross revenue of the Company for each twelve month period, effective with the consummation of the agreement. Management fees amounted to zero and $482,690 during the six months ended June 30, 2011 and 2010, respectively. In addition, during the six months ended June 30, 2010, Galen charged the Company $650,224 for costs incurred by Galen in excess of the management fees. The agreement expired on September 30, 2010.

Dividends to Galen:

In April 2009, the Company entered into an interest-free credit agreement with an affiliate under which the affiliate could borrow up to $1,500,000 through April 15, 2010.  As of December 31, 2009, the outstanding balance was $740,000.  As of December 31, 2009, amounts due to three of the Company’s affiliates under common control amounted to $521,189.  There was no interest charged on these payables and no scheduled due date.  As of December 31, 2009, these amounts were offset and $218,811 was presented as an offset to equity.  In June 2010, the $740,000 due under the note receivable was forgiven, and the amount due to affiliates was offset against the $740,000 and treated as a dividend during 2010 since all of these amounts related to the Company’s sole stockholder or affiliates under common control at the time.

During the six months ended June 30, 2010, net advances to Galen amounted to $650,224 and represented operating expenses incurred by Galen on behalf of Innolog, mainly consisting of consulting fees, payroll, rent expense, and health care expense. Thus, this amount was charged to expense by the Company during the six months ended June 30, 2010.

Consulting Agreement:

In May 2010, Emerging Companies, LLC entered into an agreement with the Company to provide consulting services to the Company relating to merger and acquisition transactions, interfacing with the public markets and other advisors, and other core business advisory services.  Two of the Company’s executive officers and directors are members of Emerging Companies, LLC.  On July 29, 2010, the agreement was amended so that the advisor was granted warrants to purchase 500,000 shares of the Company’s common stock at $.50 per share.

Legal Fees:

During the six months ended June 30, 2011, the Company incurred legal fees in the amount of $150,000 on behalf of its executive officer in defense of an investigation by a governmental agency..