Innolog Holdings Corp. - FORM 10-Q

Attached files

file	filename
EX-10.7 - Innolog Holdings Corp.	v223763_ex10-7.htm
EX-10.5 - Innolog Holdings Corp.	v223763_ex10-5.htm
EX-31.1 - Innolog Holdings Corp.	v223763_ex31-1.htm
EX-10.6 - Innolog Holdings Corp.	v223763_ex10-6.htm
EX-10.8 - Innolog Holdings Corp.	v223763_ex10-8.htm
EX-32.1 - Innolog Holdings Corp.	v223763_ex32-1.htm
EX-31.2 - Innolog Holdings Corp.	v223763_ex31-2.htm
EX-10.9 - Innolog Holdings Corp.	v223763_ex10-9.htm

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 March 31, 2011 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	(IRS Employer
incorporation or organization)	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 o

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. o Yes o 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 o	Accelerated filer o
Non-accelerated filer o (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).

o 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.

14,129,973 shares of common stock, $0.001 par value, outstanding on May 20, 2011.

INNOLOG HOLDINGS CORPORATION

REPORT ON FORM 10-Q

QUARTER ENDED March 31, 2011

TABLE OF CONTENTS

	Page
	Number

PART I - FINANCIAL INFORMATION	3

Item 1. Financial Statements (Unaudited)	3

Condensed Consolidated Balance Sheets – March 31, 2011 and December 31, 2010	3

Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2011 and 2010	4

Condensed Consolidated Statement of Stockholders’ Deficiency	5

Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2011 and 2010	6

Notes to Condensed Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3. Quantitative and Qualitative Disclosures About Market Risk	30

Item 4. Controls and Procedures	30

PART II - OTHER INFORMATION	31

Item 1. Legal Proceedings	31

Item 1A. Risk Factors	31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3. Defaults Upon Senior Securities	31

Item 4. Removed and Reserved	31

Item 5. Other Information	31

Item 6. Exhibits	32

Signatures	33

PART I – FINANCIAL INFORMATION

Item 1: Financial Statements.

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	March 31, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current Assets
Accounts receivable, net	$	722,573		$	741,478
Prepaid expenses and other current assets		19,846			19,846
Total Current Assets		742,419			761,324

Property and equipment, net		23,437			23,702
Other assets		25,485			24,352
Total Assets	$	791,341		$	809,378

LIABILITES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities
Cash overdraft	$	30,792		$	61,223
Line of credit, bank		497,570			497,570
Accounts payable		2,229,847			2,253,197
Accured salaries and benefits		2,433,564			2,113,327
Accrued interest		301,403			193,740
Other accrued liabilites		1,303,484			1,228,279
Due to former stockholder		245,350			251,350
Accrued loss on contract		-			47,782
Deferred rent		33,258			33,258
Notes payable		530,000			471,905
Notes payable, affliates		2,079,384			1,984,384
Total current liabilites		9,684,652			9,136,015

COMMITMENTS

Stockholders' Deficiency
Common stock, $0.001 par value, 200,000,000 shares authorized; 14,129,973 and 13,629,973 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively		14,130			13,630
Preferred stock, $0.001 par value; 50,000,000 shares authorized; 36,894,758 and 37,394,758 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively		36,895			37,395
Common stock to be issued		64,700			-
Additional paid in capital		886,123			862,923
Accumulated deficit		(9,895,159	)		(9,240,585	)
Total Stockholders' Deficiency		(8,893,311	)		(8,326,637	)

Total Liabilities and Stockholders' Deficiency	$	791,341		$	809,378

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the three months			For the three months
	ended March 31,			ended March 31,
	2011			2010

Revenues	$	1,303,706		$	1,712,729

Operating expenses
Direct costs		633,651			764,063
Operating expenses		941,515			1,097,002
Management fees, affiliate		-			244,510
Bad debt expense, affiliate		27,000			-
Total operating expenses		1,602,166			2,105,575

Loss from operations		(298,460	)		(392,846	)

Other Income (Expenses)
Merger expenses		-			(233,000	)
Other income		-			170
Interest expense		(356,114	)		(74,385	)
Total other income (expenses)		(356,114	)		(307,215	)

Loss before income tax provision		(654,574	)		(700,061	)

Income tax provision		-			-

Net Loss	$	(654,574	)	$	(700,061	)

Loss per share - basic and diluted	$	(0.05	)		(0.08	)

Weighted average number of shares		13,946,640			8,882,545

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

(UNAUDITED)

											COMMON STOCK				ADDITIONAL					TOTAL
	COMMON STOCK				PREFERRED STOCK						TO BE ISSUED				PAID IN		ACCUMULATED			STOCKHOLDERS'
	SHARES		AMOUNT		SHARES			AMOUNT			SHARES		AMOUNT		CAPITAL		DEFICIT			DEFICIENCY

Balance, December 31, 2010		13,629,973	$	13,630		37,394,758		$	37,395			-	$	-	$	862,923	$	(9,240,585	)	$	(8,326,637	)

Conversion of preferred stock to common stock		500,000		500		(500,000	)		(500	)		-		-		-					-

Common stock to be issued		-		-		-			-			1,000,000		64,700		-					64,700

Warrants granted for services																23,200					23,200

Net loss		-		-		-			-			-		-		-		(654,574	)		(654,574	)

Balance, March 31, 2011		14,129,973	$	14,130		36,894,758		$	36,895			1,000,000	$	64,700	$	886,123	$	(9,895,159	)	$	(8,893,311	)

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

	For the Three			For the Three
	months ended			months ended
	March 31, 2011			March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(654,574	)	$	(700,061	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,678			11,911
Amortization of debt issuance cost		64,700
Stock based compensation		23,200
Accrued loss on contracts in progress		(47,782	)		-
Merger expense related to issuance of stock		-			-
Bad debt expense, affiliates		-			-
Changes in assets and liabilities:
Accounts receivable		18,905			175,444
Prepaid expenses and other assets		(1,133	)		(26,079	)
Deferred rent		-			(754	)
Due to related party		-			283,864
Billings in excess of contract costs and related earnings		-			71,159
Accounts payable and accrued expenses		449,324			534,458

Net cash used in operating activities		(145,682	)		349,942

CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of Innovative Logistics Techniques, Inc		-			(126,451	)
Advances to affiliates		-			-
Advances on note receivable, affiliates		-			-
Property and equipment purchased		(1,413	)		-

Net cash used in investing activities		(1,413	)		(126,451	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit, bank		-			-
Due to Factor		-			-
Borrowings on notes payable, others		287,500			-
Repayments on note payable,others		(229,405	)		-
Borrowings on notes payable, related party		100,000			-
Repayments on note payable, related party		(5,000	)		-
Net borrowings from former stockholder		(6,000	)		-

Net cash provided by financing activities		147,095			-

NET CHANGE IN CASH		-			223,491
CASH - BEGINNING OF PERIOD		-			9,278
CASH - END OF PERIOD	$	-		$	232,769

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	174,454			24,000

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the three months ended March 31, 2011, the Company assumed two notes payable from Galen totaling $359,405. Of this amount, $279,636 was recorded as a dividend to Galen.

INNOLOG HOLDINGS CORPORATION AND SUBSIDIARY

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Basis of Presentation

The accompanying unaudited condensed financial statements of Innolog Holdings Corporation, and its wholly owned subsidiary, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, these financial statements reflect all normal recurring and other adjustments necessary for a fair presentation, and to make the financial statements not misleading. These financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Operating results for interim periods are not necessarily indicative of operating results for the entire fiscal year or any other future periods.

Note 2: 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. (”Innovative”), 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.

As more fully described in Note 3, on October 15, 2009, uKarma Corporation, formed in June 2001 (“uKarma”), a publicly traded Nevada corporation, and Galen entered into an agreement to merge (the "Merger Agreement") in a reverse merger transaction. In June 2010, the rights to merge were assigned directly to Holdings. The merger transaction was closed on August 17, 2010, and the Holdings stockholders have become the controlling stockholders of uKarma and the business of Holdings will continue. Under this transaction, Innolog Holdings Corporation's name was changed to Innolog Group Corporation and became a wholly owned subsidiary of uKarma Corporation. uKarma Corporation's name was changed to Innolog Holdings Corporation.

Innolog Holdings Corporation (formerly uKarma Corporation) and its wholly owned subsidiaries are referred to herein as the “Company.”

Note 3: Merger Agreement

On August 11, 2010, uKarma, GCC Merger Sub Corp., it’s wholly-owned Nevada subsidiary (“Merger Sub”), Galen, and Holdings, entered into an Amended and Restated Merger Agreement (“New Agreement”). The New Agreement provided that Holdings would be merged with Merger Sub such that Innolog would be a wholly owned subsidiary of uKarma (“Acquisition”). Pursuant to the Acquisition, Holdings common stockholders received one share of uKarma common stock for every share of Holdings common stock they held (“Common Stock Ratio”). Likewise, holders of Holdings Series A Preferred Stock received one share of uKarma Series A Preferred Stock for every share of Holdings Series A Preferred Stock they held. Holders of options and warrants to purchase Holdings common stock received comparable options and warrants to purchase uKarma common stock with the exercise price and number of underlying uKarma shares proportional to the Common Stock Ratio. Holdings would also pay uKarma $525,000 in cash (which included past advances from Galen) in connection with the intended acquisition.

uKarma completed the acquisition of all of the equity interests of Innolog held by all equity holders of Holdings (“Innolog Owners”) through the issuance of 8,882,545 shares of common stock of uKarma and 36,964,758 restricted shares of convertible Series A Preferred Stock to the Innolog Owners. Immediately prior to the Merger Agreement transaction, uKarma had 4,747,428 shares of common stock issued and outstanding. Immediately after the issuance of the shares to the Innolog Owners, uKarma had 13,629,973 shares of common stock issued and outstanding and 36,964,758 shares of convertible Series A preferred stock issued and outstanding.

As a result of the Acquisition, Holdings’ stockholders became the controlling stockholders, and Holdings became uKarma’s wholly owned subsidiary. In connection with acquiring Holdings, uKarma indirectly acquired the business and operations of Holdings’ wholly owned subsidiary, Innovative.

All of uKarma’s directors and officers resigned, and designees of Holdings were appointed as new directors and officers of the Company following the Closing. Effective at merger, the name of uKarma Corporation was changed to Innolog Holdings Corporation.

Concurrently with the Merger, uKarma’s current existing operations were assigned to a wholly owned subsidiary called Awesome Living, Inc. (“AL”). The Board of Directors and stockholders of uKarma holding a majority of the then outstanding common stock approved a spin-off of AL equity securities to uKarma’s common stockholders of record as of August 12, 2010. These financial statements are presented reflecting the spin off.

Since the owners and management of the Company possessed voting and operating control of the combined company after the share exchange, the transaction constituted a reverse acquisition for accounting purposes, as contemplated by FASB ASC 805-40 and corresponding ASC 805-10-55-10, 12 and 13. Under this accounting, the entity that issues shares (uKarma – the legal acquirer) is identified as the acquiree for accounting purposes. The entity whose shares are acquired (Holdings) is the accounting acquirer.

For SEC reporting purposes, Holdings is treated as the continuing reporting entity that acquired uKarma. The reports filed after the transaction have been prepared as if Holdings (accounting acquirer) were the legal successor to uKarma’s reporting obligation as of the date of the acquisition. Therefore, all financial statements filed subsequent to the transaction reflect the historical financial condition, results of operations and cash flows of Holdings for all periods presented.

In connection with the reverse acquisition, all share and per share amounts of Holdings have been retroactively adjusted to reflect the legal capital structure of uKarma pursuant to FASB ASC 805-40-45-1.

Note 4: Going Concern

The accompanying 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, and had a stockholders’ deficit (defined as total assets minus total liabilities) of $8,893,311 and $8,326,637 at March 31, 2011 and December 31, 2010, 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.

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 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 from the Company’s independent registered public accounting firm relating to the December 31, 2010 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 revise the Company’s operating and financial requirements.

Note 5: Summary of Significant Accounting Policies

Principles of Consolidation:

The 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.

Reclassifications:

Certain items in prior financial statements are reclassified to conform to the current presentation.

Contract Revenue Recognition:

Revenue on cost-plus-fee contracts is recognized to the extent of costs incurred plus a proportionate amount of fees earned. Revenue on fixed-price contracts is recognized on the percentage-of-completion method based on costs incurred in relation to total estimated costs. 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. In accordance with industry practice, amounts relating to long-term contracts, including retainages, are classified as current assets although an undeterminable portion of these amounts is not expected to be realized within one year. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

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 $89,112 at March 31, 2011 and at December 31, 2010.

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 5 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 reviews for the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable. 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. Goodwill was written off during the nine months ended September 30, 2010. There was no impairment loss recorded for the period ended March 31, 2010.

Income Taxes:

The Company applies 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. At March 31, 2011, 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, 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:

The Company accounts for stock based compensation in accordance with FASB ASC 505-50, “Equity Based Payments to Non-Employees”. Under the fair value recognition provisions of FASB ASC 505-50, the Company measures stock based compensation cost at the grant date based on the fair value of the award and recognizes expense over the requisite service period.

Debt Issuance Costs:

Debt issurance 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.

Contingent consideration payable is based on the revenues and earnings projections of Innovative discounted by the rate of the seller note.

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.

The Company has determined that the contingent consideration liability falls within level three of the hierarchy. The balance was written down to zero during 2010.

Earnings (loss) per Share:

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 three months ended March 31, 2011 and March 31, 2010 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 financial statements.

Note 6: Major Customers

Revenues from prime contracts and subcontracts with U.S. Government agency customers in aggregate accounted for approximately 100% of total revenues for the three months ended March 31, 2011 and March 31, 2010.

Note 7: Accounts Receivable

Accounts receivable consisted of the following as of March 31, 2011 and December 31, 2010:

	March 31, 2011			December 31, 2010
Billed receivables	$	743,621		$	672,466
Unbilled receivables		68,064			158,124
Reserve for bad debts		(89,112	)		(89,112	)
	$	722,573		$	741,478

Contract receivables from prime contracts and subcontracts with U.S. Government agency customers in aggregate accounted for 100% of total contract receivables at March 31, 2011 and December 31, 2010.

Note 8: Line of Credit

In April 2009, Holdings entered into a credit agreement with Eagle Bank under which it may borrow up to $500,000. Borrowings under the agreement are guaranteed by eight individuals, who are directly or indirectly related to Holdings. The borrowings are payable upon the bank’s demand. Interest is payable monthly at the bank’s prime rate (as defined) plus 1%. At March 31, 2011, the interest rate was 5%. As of March 31, 2011, the Company was not in compliance with certain covenants in the agreement.

Note 9: Notes Payable

As of March 31, 2011 and December 31, 2010, $530,000 and $471,905 were outstanding, respectively, on notes payable to individuals, trusts, and corporations not related to the Company, of which maturity dates vary from October 11, 2010 to May 20, 2011. Some of the notes are collateralized by the Company’s accounts receivable. Interest charges are a percentage per annum or a flat fee as detailed in each note. New loans totaled $537,500 for the three months ended March 31, 2011. For new notes during 2011, the lenders were granted warrants to purchase 450,000 shares of Innolog common stock at a strike price of $0.01 per share, and 150,000 shares of Innolog common stock at a strike price of $0.50 per share. In addition, for one of the notes in the amount of $100,000, the lender received 402,000 shares of Series A Convertible Preferred Stock and for other notes totaling $150,000 the lender received 500,000 shares of common stock from the former sole stockholder of the Company, Galen. In exchange, the Company will issue 1,000,000 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 three months ended March 31, 2011 since the loan was due in March 2011. Of these loans, $317,500 have matured and are in default. Additional interest is due upon default and accrues at 15% per annum or 10% per month.

Note 10: Related Party Transactions

Notes Payable:

In March 2009, Holdings and Innovative (the “Borrowers”) entered into an agreement (the “Loan Agreement”) with eight 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 March 31, 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 matured in March 2011 and interest was 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. This loan is currently under negotiation to be renewed by the bank. In addition to the interest due to the bank, during 2009, the Company granted warrants to the Lenders under which they may purchase 1,760,000 common shares of the Company’s common stock, with a strike price of $0.023 per share. The warrants expire on March 31, 2014. The fair value of these warrants amounted to $520,000 and was amortized to interest expense during 2009, with a strike price of $0.023 per share. The warrants expire on March 31, 2014. The fair value of these warrants amounted to $520,000 and was amortized to interest expense during theyear ended December 31, 2009. Total interest incurred on this loan amounted to approximately $19,000 during the three months ended March 31, 2011 and 2010, respectively.

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 shares 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 March 31, 2011 and 2010.

As of March 31, 2011 and December 31, 2010, $255,000 and $160,000 were outstanding, respectively, on other notes payable to related parties. Maturity dates vary from January 9, 2011 to February 10, 2012. New and renewed loans totaled $150,000 for the three months ended March 31, 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, $75,000 were in default as of March 31, 2011. Total interest incurred on these notes amounted to $20,051 during the three months ended March 31, 2011. Total interest accrued on these notes amounted to $51,958 and $37,705 as of March 31, 2011 and December 31, 2010.

Loans from Former Stockholder:

As of March 31, 2011 and December 31, 2010, $245,350 and $251,350, respectively, was outstanding on notes payable to a former stockholder. During the three months ended March 31, 2011 and March 30, 2010, interest of $18,547 and $24,000 was incurred on these notes. As of March31, 2011 and December 31, 2010 $9,297 and $0, respectively, of interest was accrued on these notes. All of these notes are in default and carry a default interest rate of 15% per annum. The loans are currently being renegotiated.

In November 2010, one of the notes in the amount of $57,332, including interest of $17,200, was converted into 30,000 shares of Innolog’s $0.001 par value Series A Convertible Preferred Stock, which was valued at $0.01 per share.

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 $244,510 during the three months ended March 31, 2011 and 2010, respectively. In addition, during the three months ended March 31, 2010, Galen charged the Company $264,018 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 three months ended March 31, 2010, net advances to Galen amounted to $264,018 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 three months ended March 31, 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 three months ended March 31, 2011, the Company incurred legal fees in the amount of $100,000 on behalf of its executive officer in defense of an investigation by a governmental agency..

Note 11: Commitments and Contingencies

Leases:

The Company leases office space in Washington, D.C.; Orlando, Florida; Springfield, Virginia; and McLean, Virginia under operating leases expiring at various dates through 2013. 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 March 31, 2011 are approximately as follows:

Year ending December 31,
2011	$	172,000
2012		128,000
2013		33,000

	$	333,000

Total rent expense amounted to $80,258 and $182,453 for the three months ended March 31, 2011 and 2010, 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 does not make the payment timely, it has agreed to a confessed judgment in the amount of $936,510 and this amount has been included in other accrued liabilities on the balance sheet as of March 31, 2011 and December 31, 2010.

Late Deposit of Payroll Taxes and Employee Income Tax Withholdings:

During 2011, 2010, and part of 2009, the Company has not made deposits of federal and state employer payroll taxes, as well as employee income tax withholdings. As of March 31, 2011 and December 31, 2010, the total of payroll tax accrued and income tax withheld balances including penalties and interest, amounted to $2,203,038 and $1,791,250, respectively, which is included in accrued salaries and benefits on the balance sheet. The Company is currently in discussions with the taxing authorities to develop a payment plan.

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 March 31, 2011, the total commitment, excluding incentives, was $594,000.

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 some of which filed law suits against the Company. All necessary accruals have been made as of March 31, 2011 and December 31, 2010 and are included in accounts payable and other accrued liabilities.

Note 12: 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 March 31, 2011, the Company had net operating loss carry forwards of approximately $5.6 million for federal and Virginia state tax purposes expiring through 2030.

The Company recognizes interest and penalties related to income tax matters in interest expense and operating expenses, respectively. As of March 31, 2011, the Company has no accrued interest and penalties related to uncertain tax positions.

Note 13: 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 three months ended March 31, 2011 and the year ended December 31, 2010, respectively.

Innovative has been late in making deposits of employee deferrals in the amount of $192,201. As of March 31, 2011, an estimated late deposit penalty of $32,000 has been accrued and included in accrued salaries and benefits on the balance sheet. The Department of Labor is reviewing Innovative’s employee benefit plan document as well as other records to determine the status of compliance. The outcome is undetermined as of the date of these financial statements.

Note 14: Capital Stock

Common Stock:

As of December 31, 2009, 100,000,000 shares of $.001 par value common stock were authorized and 20,000,000 shares of common stock were issued and outstanding. In May 2010, the Company consummated a .44-for-1 reverse stock split, thereby decreasing the number of issued and outstanding shares to 8,882,545, and increasing the par value of each share to $0.0023.

In connection with the merger with uKarma, uKarma’s Articles of Incorporation were amended such that there are 200,000,000 shares of $.001 par value common stock authorized and 13,629,973 shares of common stock issued and outstanding. The common stock amount has been changed from $20,000 to $13,630 to reflect the change in par value.

During the three months ended March 31, 2011, 500,000 shares of preferred stock were converted to 500,000 shares of common stock.

As of March 31, 2011, there were 14,129,973 shares of common stock 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 and 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.

During the three months ended March 31, 2011, 500,000 shares of preferred stock were converted to 500,000 shares of common stock.

As of March 31, 2011, there were 36,894,758 shares of Series A Stock outstanding and no dividends have been accrued.

Dividends:

As of the year ended December 31, 2009, the net amount due from Galen, totaling $218,811, was reclassified to equity and was treated as a dividend to Galen, the Company’s sole stockholder at the time, during the three months ended March 31, 2010. In addition, during the three months ended March 31, 2010, the Company assumed two notes payable from Galen totaling $359,405. Of this amount, $279,636 was recorded as dividends to Galen.

Stock Warrant Activity:

On March 31, 2009, the Company granted 4,000,000 warrants to various affiliated individuals in conjunction with their guarantee of the Company’s line of credit (Note 8) and their loans to the Company (Note 10). The warrants had an exercise price of $0.01 per share and a life of five years. All warrants were fully vested on the date of grant. The fair value of the warrants was $520,000 and was charged to interest expense for the period from March 23, 2009 (inception) to December 31, 2009. In May 2010, the Company reverse split the shares of common stock covered by these warrants on a .44 to 1 basis to 1,760,000 shares with an exercise price of $.023 as a result of the reverse stock split.

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

Expected dividend yield	0	%
Expected volatility	70	%
Average risk free interest rate	1.67	%
Expected life (in years)	2.5

For the three months ended June 30, 2010, the Company granted 39,106,857 warrants to various individuals in conjunction with the individuals lending the Company working capital (Notes 9 and 10) or in conjunction with the assignment of the merger rights with a public company. The warrants have an exercise price of $.50 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 zero 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	67	%
Average risk free interest rate	1.79	%
Expected life (in years)	5.0

For the three months ended September 30, 2010, the Company granted 1,515,000 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital (Notes 9 and 10). The warrants have an exercise price of $.50 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 zero 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	68.64	%
Average risk free interest rate	1.27	%
Expected life (in years)	5.0

For the three months ended December 31, 2010, the Company granted 553,000 warrants to various individuals in conjunction with the individuals lending the Company funds for working capital. 150,000 of the warrants have an exercise price of $.01 and a life of 5 years, and the remaining 403,000 of the warrants have an exercise price of $.50 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 zero 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	63.07	%
Average risk free interest rate	2.01	%
Expected life (in years)	5.0

For the three months ended March 31, 2011, the Company granted 1,457,500 warrants to various individuals in conjunction with loans made to the Company by the individuals for working capital (1,125,000) and for consulting (332,500). Of the warrants, 580,000 have an xercise price of $.01 and a life of 5 years, and the remaining 877,500 of the warrants have an exercise price of $.50 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 $23,200 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	68.53	%
Average risk free interest rate	2.24	%
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, 2010		1,760,000	(A)	$	.0227

Granted		41,174,857		$	0.498
Merger with uKarma		142,272		$	10.47
Exercised		-		$	-
Forfeited/Expired		-		$	-
Outstanding, December 31, 2010		43,077,129		$	.5134

Granted		1,457,500		$	.3050
Exercised		-
Forfeited/Expired		(22,480	)	$	11.12
Outstanding, March 31, 2011		44,512,149		$	.4995

(A)

The original warrant granted was 4,000,000 which is in equivalent of 1,766,000 after the .44-for-1 reverse stock split.

At March 31, 2011, there were 44,512,149 warrants outstanding and exercisable. These warrants had a weighted average exercise price of $.4995 and a weighted average remaining life of 50.75 months.

Stock Option Plan:

Upon merger with uKarma on August 17, 2010, the Company assumed uKarma’s existing 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 March 31, 2011 is presented in the following table. Shares have been adjusted to reflect uKarma’s reverse stock split of 11.120904 to 1 effective as of the date of merger:

	Number of Shares		Weighted Average Exercise Price
Outstanding at beginning of year 2011		13,451,980	$	0.503
Granted		-
Exercised/Expired/Cancelled		-
Outstanding at March 31, 2011		13,451,980	$	0.503

Exercisable at March 31, 2011		12,892,480	$	0.503

The fair value of the stock options granted is estimated on the date of grant using the Black-Scholes option valuation model. This model uses the assumptions listed in the table below. Expected volatilities are based on the estimated volatility of the Company’s stock. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has determined through a Black Scholes analysis that the fair value of the options was zero at the time of issue.

The following assumptions were used in arriving at a fair value of the options:

Weighted average fair value per options granted	$	0.00
Risk free interest rate		1.27	%
Expected dividend yield		0	%
Expected lives	60 months
Forfeiture rate		0	%
Expected volatility		68.64	%

These stock options have a weighted average remaining life of 52.9 months. The intrinsic value is not greater than the grant price.

Note 15: Quarterly adjustments

On May 10, 2011 our Principal Executive Officer, Principal Financial Officer and the Chairman of our Audit Committee concluded that our previously issued consolidated financial statements for the three months ended March 31, 2010, the six months ended June 30, 2010 and the nine months ended September 30, 2010 should no longer be relied upon. The consolidated financial statements for the three months ended March 31, 2010 and for the six months ended June 30, 2010 were included in amendments to our Current Report on Form 8-K which was originally filed with the Securities and Exchange Commission on August 16, 2010. The amendments were filed with the Securities and Exchange Commission on August 16, 2010 and October 15, 2010, respectively. The consolidated financial statements for the nine months ended September 30, 2010 were included in our Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on November 22, 2010. The errors in the consolidated quarterly financial statements include the following:

(i)

The notes payable were understated by $359,405;

(ii)

Expenses incurred by related parties on behalf of the “Company” were misstated; and

(iii)

Dividends to Innolog’s former sole stockholder were misstated.

The effects of the adjustments are illustrated below:

	Originally			Adjustment	Restated
	Reported			Required	Amounts
Three months ended
March 31, 2010

Consolidated Balance Sheet
Total Assets	$	4,866,665		(i) Increase in deposit of $19,846	$	4,886,511
Total Liabilities	$	7,995,244		(i) increase in notes payable of $359,405	$	8,354,649
Total Stockholder’s Equity	$	(3,128,579	)	(ii) increase in dividend paid of $77,185	$	(3,468,138	)
				(ii) increase in accumulated deficit of $264,018
Consolidated Statement of Operations
Net Loss	$	(436,043	)	(ii) increase in other expense of $264,018	$	(700,061	)
				(ii) increase in net loss of $264,018
Consolidated Statement of Stockholder’s Equity
Common Stock	$	20,000		No adjustment	$	20,000
Preferred Stock	$	0		No adjustment	$	0
Additional Paid in Capital	$	520,000		No adjustment	$	520,000
Accumulated Deficit	$	(3,247,317	)	(ii) increase in dividends paid of $77,185	$	(3,586,876	)
				(ii) increase in net loss of $264,018
Six months ended
June 30, 2010

Consolidated Balance Sheet
Total Assets	$	4,365,000		(i) Increase in deposit of $19,846	$	4,384,846
Total Liabilities	$	7,039,209		(i) increase in notes payable of $359,405	$	7,398,614
Total Stockholder’s Equity	$	(2,674,209	)	(ii) increase in dividend paid of $415,150	$	(3,013,769	)
				(ii) decrease in accumulated deficit of $75,590
Consolidated Statement of Operations
Net Loss	$	(553,772	)	(ii) increase in other expense of $151,523	$	(478,182	)
				(ii) decrease in bad debt expense of $227,113
				(ii) decrease in net loss of $75,590
Consolidated Statement of Stockholder’s Equity
Common Stock	$	20,000		No adjustment	$	20,000
Preferred Stock	$	36,965		No adjustment	$	36,965
Additional Paid in Capital	$	852,683		No adjustment	$	852,683
Accumulated Deficit	$	(3,583,857	)	(ii) increase in dividends paid of $415,150	$	(3,923,417	)
				(ii) decrease in net loss of $75,590

Nine Months Ended
September 30, 2010

Consolidated Balance Sheet
Total Assets	$	1,189,321		(i) Increase in deposit of $19,846	$	1,209,167
Total Liabilities	$	7,738,380		(i) increase in notes payable of $359,405	$	8,097,785
Total Stockholder’s Equity	$	(6,549,059	)	(ii) increase in dividend paid of $415,150	$	(6,888,619	)
				(ii) decrease in accumulated deficit of $75,590
Consolidated Statement of Operations
Net Loss	$	(4,432,622	)	(ii) increase in other expense of $7,885	$	(4,357,032	)
				(ii) decrease in bad debt expense of $83,475
				(ii) decrease in net loss of $75,590
Consolidated Statement of Stockholder’s Equity
Common Stock	$	13,630		No adjustment	$	13,630
Preferred Stock	$	37,365		No adjustment	$	37,365
Additional Paid in Capital	$	862,653		No adjustment	$	862,653
Accumulated Deficit	$	(7,462,707	)	(ii) increase in dividends paid of $415,150	$	(7,802,267	)
				(ii) decrease in net loss of $75,590

The Company intends to file an amended Form 8-K and an amended Form 10-Q as soon as practicable. The adjustments disclosed above have been included in our consolidated financial statements for the year ended December 31, 2010 and three months ended March 31, 2011.

Note 16: Subsequent Events

On April 27, 2011, the Company borrowed $25,000 from a trust. The loan carried a flat fee of $2,500 and a maturity date of May 5, 2011.

On April 29, 2011 and May 5, 2011 the Company borrowed funds from a former stockholder. The total amount borrowed was $50,000. The loans carried a flat fee of $2,500 on each loan and a maturity date of May 29, 2011 and June 5, 2011, respectively.

On May 6, 2011, the Company borrowed $20,000 from a related party. The loan carried a flat fee of $2,000 and a maturity date of June 6, 2011.

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 subsidiaries, Innolog Group Corporation, and Innovative Logistics Techniques, Inc., for the three months ended March 31, 2011 and 2010 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 May 18, 2011. References to “the Company,” “we,” “our,” or “us” in this discussion refer to Innolog Holdings Corporation and its subsidiaries.

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 three additional offices located in Washington D.C., Tennessee and Florida.

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, with federal government spending on information technology forecasted to increase from approximately $76 billion in federal fiscal year 2009 to $90 billion in federal fiscal year 2014. 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:

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 historicalcollection experience coupled with a review of the current status of existing receivables. The allowance for doubtful accounts amounted to $89,112 at March 31, 2011 and at December 31, 2010.