Innolog Holdings Corp (INHC)

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How One Small Cap Government Contractor is Preparing for the Fiscal Cliff
Small cap government contractor Innolog Holdings Corporation (INHC) has prepared for the fiscal cliff by entering new funding agreements and by refinancing or paying off debt.
By John Udovich
Nov 27, 2012 8:41:22 AM
How One Small Cap Government Contractor is Preparing for the Fiscal Cliff

Small cap stock Innolog Holdings Corporation (PINK: INHC) may not be as well known of a government contractor as Booz Allen Hamilton Holding Corporation (NYSE: BAH) and CACI International (NYSE: CACI) but all government contractors are facing the same uncertainty that comes with the so-called fiscal cliff. To first put things in perspective: The fiscal cliff comes $1.2 trillion in mandatory cuts with around half coming from defense and half from domestic programs. Beyond that, no one knows where the cuts will be nor how deep they will be plus its not just defense spending that will take a hit but its most areas of the federal budget. Moreover, the cuts won’t happen like a light switch come January 1st but they will come over time.

That brings me back to Innolog Holdings Corporation which is a holding company created in 2009 to acquire companies within the government services industry. Specifically, Innolog Holdings Corporation provides supply chain logistics and information technology solutions through Innovative Logistics Techniques, Inc. (which was founded in 1989) to clients both in the public and private sectors. These clients would include the Department of Defense, Department of Homeland Security, civilian agencies in the federal government and state and local municipalities plus commercial organizations.

Before everyone started talking about the fiscal cliff because they were too busy talking about the elections, Innolog Holdings Corporation entered into a funding agreement with Glen Hill Investments LLC who would provide up to $6,000,000 in capital (Glen Hill has already provided $1,750,000 in funding as a lead investor). This funding at the end of May was used to strengthen Innolog Holdings Corporation’s balance sheet, fulfill its backlog and have the capital to bid on new projects to keep the company on track for growth.

Then right before Thanksgiving, Innolog Holdings Corporation announced that it and subsidiary Logistics Techniques, Inc. had refinanced $500,000 worth of bank debt along with $1.5 million in affiliated debt to longer terms (The debts had previously been due in September). As part of the refinancing, certain Board members plus key outside investors agreed to pay off the bank debt and refinance it. In addition, the terms of the affiliated debt was extended to a 5 year maturity.

By refinancing the debt with more favorable terms, Innolog Holdings Corporation has further strengthened its balance sheet and it won’t have to worry about the debt just as we are all jumping off of or sliding down the fiscal cliff. The company also demonstrates the continued support and commitment it has from certain key investors or stakeholders at a time of increasing uncertainty.

Likewise and given Innolog Holdings Corporation’s strategy to acquire companies that operate within government services industry, having a strong or strengthening balance sheet and access to funding or financing could lead it to acquire other small government services contractors that aren’t so lucky. With that in mind, keep an eye on Innolog Holdings Corporation and just remember that the fiscal cliff won’t be the end of the world.