CONOLOG CORP - FORM 10-K - November 13, 2009

Attached files

file	filename
EX-31.1 - CONOLOG CORP	c59291_ex31-1.htm
EX-32.1 - CONOLOG CORP	c59291_ex32-1.htm
EX-21.1 - CONOLOG CORP	c59291_ex21-1.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended July 31, 2009

|_| 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: 0-8174

CONOLOG CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE		22-1847286
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

5 Columbia Road, Somerville, NJ		08876
(Address of principal executive office)		(Zip code)

Issuer’s telephone number, including area code: (908) 722-8081 Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange in which registered
Common Stock, $0.01 par value		NASDAQ Capital Markets

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes |_| No |X|

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes |_| No |X|

Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 \|X\| No \|_\|

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.

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 definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer \|_\|	Accelerated filer \|_\|
Non-accelerated filer \|X\|	Smaller reporting company \|_\|

The aggregate market value of the voting stock held by non-affiliates of the Registrant based on the closing sale price of $1.80 on November 11, 2009 was $4,233,521

The number of shares outstanding of the Registrant’s common stock outstanding, excluding treasury shares, as of November 11, 2009 was 3,180,846.

TABLE OF CONTENTS


PART I

Item 1. BUSINESS		1

Item 2. DESCRIPTION OF PROPERTY		8

Item 3. LEGAL PROCEEDINGS		8

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		8

PART II

Item 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS		9

Item 6. SELECTED FINANCIAL DATA		10

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION		10

Item 8. FINANCIAL STATEMENTS		14

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		14

Item 9A. CONTROLS AND PROCEDURES		14

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS		15

Item 10A. EXECUTIVE COMPENSATION, PROMOTERS AND CONTROL PERSONS: COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT		17

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		18

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		19

Item 13. EXHIBITS		20

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES		21

SIGNATURES		22

FORWARD LOOKING STATEMENTS

This annual report on Form 10K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those stated. Such statements are subject to certain risks and uncertainties, including possible significant variations in recognized revenue due to customer caused delays in installations and competition from larger better known, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. Furthermore, there can be no assurance that our sales will increase. The Company does not assume any obligation to update the forward-looking information and cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

PART 1

GENERAL INFORMATION
We are engaged in the design, production (directly and/or through subcontractors) and distribution of small electronic and electromagnetic components and sub-assemblies for use in telephone, radio and microwave transmission and reception and other communication areas that are used in both military and commercial applications. Our products are used for transceiving various quantities, data and protective relaying functions in industrial, utility and other markets.

ITEM 1 - BUSINESS

HISTORY
We were organized in 1968 and were engaged primarily in the design and manufacture of electronic components and systems for military applications.

In July 1971, we merged with DSI Systems, Inc., then engaged in the development and manufacture of terminal viewers for digital retrieval of microfilm. Later that year, we changed our name to Conolog Corporation.

In 1981 we acquired one of our customers, INIVEN Corporation (“INIVEN”). At that time, we were manufacturing, on behalf of INIVEN, a line of transmitters and receivers used for controlling and transceiving the measurement of the flow of gases and liquids, by gas and water utilities for controlling the flow of waste water and sewage and measuring and controlling traffic.

During 1987, we made a strategic decision to redirect our focus from military to commercial markets. Since that time, we have refocused on manufacturing and marketing our products for the commercial marketplace rather than depend on the military and defense-related markets. Our primary emphasis was on products for electric utilities, co-generation of power, gas and water companies, traffic control for departments of transport (DOT) and airports utilizing DSP (Digital Signal Processing) technology.

In September 1998, we acquired the assets of Atlas Design, Inc., a human resource outsourcing company, to further our strategy of mergers and acquisitions, and to assist in providing qualified engineering and technical staff in support of our longer term contracts.

In January 2001, we acquired substantially all of the assets of Prime Time Staffing Inc. and Professional Temp Solutions, Inc. These companies provided permanent and temporary employees for the graphics design firms, book publishing companies and engineering businesses.

During the year ended July 31, 2001, we formed a wholly owned subsidiary, Lonogoc Corporation. In August, 2000, Lonogoc Corporation purchased the assets of Independent Computer Maintenance Corporation, which provided installation, maintenance, and troubleshooting of computer systems and networks. On October 22, 2002, we entered

an agreement to rescind the Asset Purchase Agreement between us and Independent Computer Maintenance Corporation. Under the rescission agreement, Conolog and its subsidiary agreed to transfer all assets previously purchased pursuant to the Asset Purchase Agreement, to the extent they still exist, to the former seller. The return of the purchase price paid for the assets was $600,000, $300,000 in cash at closing, a note, which is secured by a first mortgage on a condominium, for $150,000 bearing an interest rate of 7.5% of which will be paid over 24 months in equal monthly installments of $6,750 per month beginning December 2002, and an unsecured note receivable for $137,350 payable over 10 years beginning December 2004 bearing an interest rate of 5%.

In March 2004, we ceased operating our staffing business. The assets of our wholly-owned subsidiary, Nologoc, Inc. trading as Atlas Design, were sold to the subsidiary’s Vice President. In consideration of the sale, we received $34,000 in cash.

PRODUCTS
We are engaged in the design and manufacture of (i) transducers, which are electro-magnetic devices which convert electrical energy into mechanical and other forms of physical energy, or conversely convert mechanical and other forms of physical energy into electrical energy; (ii) digital signal processing (DSP) systems and electromagnetic wave filters for differentiation among discreet audio and radio frequencies; (iii) audio transmitters and modulators, for the transmission over telephone lines, microwave circuits, or satellite, of electrical signals obtained from transducers, data generated in electronic code form or by computers or other similar equipment (not manufactured by us); (iv) audio receivers and demodulators which are small systems which receive and decode the signals from the audio transmitters and convert them into digital codes for input into computers, teletypes or other similar equipment (not manufactured by us) or convert such signals into mechanical or other form of energy, such as opening or closing valves, or starting or stopping a motor; (v) magnetic “networks” which are devices that permit the matching or coupling of different types of communication equipment together or many identical or similar equipment together or onto telephone or other transmission lines so as not to cause interference; and (vi) analog transmitters and receivers, which permit the coding/transmission and receiving/decoding of a constantly variable data, such as the water level in a tank, pressure in a pipe or temperature, by actually displaying the exact information at the receiving end in digital form for storing in a computer or other devices, or by physically displaying the information in a visual fashion such as a numerical readout or meter, and (vii) multiplexer supervisory controls, which enable callers with high volumes of supervisory data to transmit on fewer phone lines.

Such products are used in radio and other transmissions, telephones and telephone exchanges, air and traffic control, automatic transmission of data for utilities, tele-printing of transmitted data such as news and stock market information and for use by electric utilities in monitoring power transmission lines for faults and/or failures. Our products may be used independently or in combination with other products to form a system type configuration, whereby our equipment is pre-assembled in a large cabinet with other equipment in a configuration that would provide the end user with protection as well as operational status displays.

PRESENT STATUS/BUSINESS PRODUCT DESCRIPTION

We are engaged in three basic market segments:


1)	Commercial Sales (Under the trade name “INIVEN” (a Division of Conolog))

		Ÿ	Direct sales to end-users

		Ÿ	Sales to system assemblers

		Ÿ	Sales to contractors/installers

2)	Military Sales

		Ÿ	Direct contract sales to military

		Ÿ	As subcontractor to systems producers

		Ÿ	Foreign governments

3)	Commercial Sales - As Manufacturing Subcontractor to Systems Producers.

MILITARY SALES

Military sales are primarily for our electromagnetic wave filters used in military radios, vehicles (cars, trucks or tanks), portable (backpack), special signaling equipment and exchanges (as in field command posts), ship to ship teletype signaling filters used in deployment of ships (UCC-1 and UCC-4 systems) as well as many other signaling applications where accurate electromagnetic frequency control is required.

Our military sales are received through independent sales representatives who are paid a commission.

COMMERCIAL “INIVEN” SALES AND PRODUCTS

“INIVEN” equipment is designed around four (4) core product groups:


	1)	PTR and PDR Teleprotection Series (Protective Tone Relaying Communications Terminal), which includes the PTR-1000, PTR-1500 and PDR-2000.

	2)	Audio Tone & Telemetry Equipment (Audio Tone Control, Telemetering and Data Transmission Systems), which includes Series “98”, “68”, “40” and “GEN-1”.

	3)	Multiplex Supervisory Control System

	4)	Communication Link Multihead Fiber Optic Couplers and Industrial Grade 1200 Baud Modems.

PTR AND PDR TELEPROTECTION SERIES
This product is designed for use exclusively by electric power generators (electric utilities and co-generators) in order to protect their transmission and distribution lines. The PTR-1000, by monitoring the output signal of the transmission equipment in less than one hundredth of a second protects the transmission and distribution lines.

The PTR-1000 are installed in pairs, one unit at each end of the line. Each unit is connected and in constant communication with the other, as they continuously monitor the line for faults. In the event of a fault occurring (such as a downed line or a short circuit) at either end and when confirmed by the receiving PTR-1000 unit, the line is immediately isolated for shut down, averting costly damage and downtime.

The PTR-1000 system is composed of a transmitter, dual receivers, a logic card (brain center and controller of the system), relay module, line interface module and power supply module. The transmitters at each end are independent and transmit (continuously) the status (information being monitored) at their end of the line.

The PTR-1500, is a quad system and performs as 2 duals or 4 singles with many unique features such as multiple line operation, event recording with date stamp with optional analog or digital transmission modes including optic fiber interface.

The PDR 2000 is an 8 channel high speed communication system for use in electric power transmission protection schemes. Unique features include event recording, on-board and remote programming, and ID (unit to unit identification on all communications), Packet Forwarding (ability to forward information such as trips and all events through indirect communication paths), password protection and multiple communication ports.

The PTR/PDR Teleprotection Series are designed for global use by electric utilities and any entity generating power for its own consumption with resale of surplus power to an electric utility, such as cities, municipalities, cooperatives and large corporations that find it more economical to generate their own electricity.

The PTR/PDR market is:


	Ÿ	New installations; i.e., new transmission lines, new distribution segments, for utilities and cogenerators.


	Ÿ	Existing installations not properly protected, improving efficiency and reducing down time.

	Ÿ	Existing installations for upgrading to PTR/PDR technology, again improving efficiency and down time.

Sales efforts for the PTR/PDR are presently being conducted by the Company’s marketing executives, through independent manufacturers’ representatives and through distributors. Sales are targeted primarily to the largest utilities and co-generators.

In the United States alone, there are over 500 large entities generating electricity. They are:


	Ÿ	Municipal Systems

	Ÿ	Cooperative Systems

	Ÿ	Federal, State and District Systems

	Ÿ	Audio Tone and Telemetry Equipment

For many years there has been a need for a modularly independent system that would permit a user, from a distance, to control functions such as opening a valve, starting a motor, shutting down a compressor, changing a traffic signal, control landing lights at an airport, activate a hazard warning on a highway, and in return allow the user to receive information, such as the liquid level in a tank, the pressure in a pipe, the rate of flow out of a compressor, the flow of traffic, the status of a traffic light, airport lights, or confirmation that a command was performed. Such information is transmitted and received and the control functions are performed from a distance utilizing telephone lines, microwave link or direct wire.

These applications, by their nature, can be accomplished with slow speed signaling systems composed of a transmitter on one end and a receiver on the other to carry out the necessary instructions provided by the transmitter. Each set (transmitter/receiver combination) is called a channel. Because of the slow speed, up to 30 channels could be made to transmit and receive signals, in either direction on a single telephone line, microwave link or direct-wired line at the same time. This parallel transmission permits each transmitter/receiver pair to be independent of all the others.

This product segment includes the first generation equipment, known as GEN-1, followed by later generations which include technological improvements and programmable capabilities to include:

GEN-1 Series - First generation with electromagnetic modules and first generation programmable modules without electro-magnetic modules.

“98” and “68” Series - The latest generation applies DSP and microprocessor technology with full programmability, in the field or at the factory.

“40” Series - Designed to function with the “98” or “68” series; transmits and receives variable analog data.

GEN-1 AND GEN-1 PROGRAMMABLE SERIES
The diversity of applications for this equipment makes it available for a wide range of users who are not restricted to a single industry. Typical industrial uses include: the measurement of water and gas, waste water, gasoline, oil, traffic, and electricity. Typical users include: utilities, co-generators, airports, navy yards, telephone companies, paper and pulp processors and wherever remote control and data acquisition is required.

Since our line has a distinct mechanical configuration, we designed our GEN-1 Programmable units and other improvements as replacements for existing units.

Our line of GEN-1 equipment is extensive and provides the user with the ability to perform multiple control functions, status monitoring as well as continuous variable data monitoring, such as a level in a tank or pressure gauge.

Sales for this line are primarily for the replacement of existing installations and for expansion of these installations where it would not be economical to install the latest technology, which would not be mechanically compatible.

Sales to this market are made in the same manner as the PTR/PDR market except that manufacturers’ representatives specialize in selling to this diverse market.

“98,” “68” and “40” Series represent our latest designs in the audio tone equipment utilizing the more advanced DSP technology, which provides high accuracy and long-term stability. These features have allowed us to greatly improve the scope, density and number of functions that can be performed on a single phone line, microwave link or direct line.

Sales of these products are made by the same agents who sell our GEN-1 products, but are also directed to encompass more sophisticated users with larger amounts of data and control points. The mechanical configuration of the “98” series is more compact, permitting more equipment in a given space, while performing many more functions when it is connected to the “40” Series. The “68” Series is the “98” Series repackaged mechanically specifically for customers with older systems permitting them to upgrade their systems to DSP technology. The “40” Series, when connected to the “98” or “68” in the same chassis, permits the continuous monitoring of variable data.

Typical applications for these products include transmission of the variable data (such as volume, temperature, pressure and moisture) for water, gas, industrial gases, oil, gasoline, transportation equipment and telephone exchanges, and for use at airports, tunnels and bridges and for security and electricity systems.

MULTIPLEX SUPERVISORY (IM) CONTROL SYSTEM
This product is a response to the cost and scarcity of dedicated phone lines (connections whereby the phone link is dedicated to one subscriber), and enables customers with high volumes of supervisory data (where many functions are monitored from a single site) to transmit data on fewer phone lines (i.e., with more data per channel, up to a maximum of 30 channels per line).

Using the “98” DSP Series as its communications link, we designed the Multiplexer Supervisory Control System to handle 8 times the normal capacity per channel. The microprocessor-based system allows a single telephone line to handle up to 900 data inputs. This product line because of its data density capability may be utilized for a very broad range of applications. This product has only recently been introduced and our sales efforts for it are being conducted through its existing independent manufacturers sales representatives.

FIBER OPTIC LINK AND DATA MODEM
The expansion of fiber lines by our customers and their need to switch equipment from phone lines to fiber prompted us to design and introduce a fiber-optic-coupler line to interface with the many different fiber heads. In addition to complete data interface couplers we launched a series of 1200 Baud Modems (Industrial Grade) for operation under the same environmental specifications in line with our products.

OUR STRATEGY
Our strategy is to develop new commercial markets by continuing to develop new products and enhance existing products to improve both our market share and competitive position. Growth in commercial sales is expected to come through internal growth of existing products, new product introductions and the expansion of regional markets to meet the growing needs of our customers for more sophisticated and comprehensive products and services.

MARKETING AND SALES
In general, our products are marketed through telemarketing and customer contacts by our President and through independent manufacturing sales representatives and distributors.

COMPETITION
The market for our products and staffing services is very competitive. There are several companies engaged in providing the services and in the manufacturing the products of the type produced by us, most of which are substantially larger and have substantially greater name recognition or greater financial resources and personnel. The major competitive factors include availability of personnel, product quality, reliability, price, service and delivery. Competition is expected to continue and intensify. The market is also characterized by rapid technological changes and advances. We would be adversely affected if our competitors introduced technology superior products or offered these products and services at significantly lower prices than our products.

LARGEST CUSTOMERS
Our major customers during fiscal 2009 and 2008:


	2009		2008

Bonneville Power Authority	$	186,002	$	183,270
Wunderlich-Malec (NIPSCO)		112,575		233,735
Surtek Industries		638,095		190,500
Tucson Electric Power		66,535		148,632
Defense Supply Command		75,740		31,756


	$	1,078,947	$	787,893

None of these customers has or had any material relationship other than business with the Company.

INVENTORY

RAW MATERIALS
We believe that we have adequate sources of raw materials available for use in our business. Our products are assembled from a variety of standard electronic components, such as integrated circuits, transformers, transistors, passive components (i.e., resistors, capacitors and inductors), diodes and assorted hardware, such as, printed circuit boards, connectors and faceplates. We are not dependent upon any single supplier. We also purchase a number of other electronic components and sub-assemblies from various suppliers.

In the past, we manufactured and held in our inventory finished products pursuant to the military specifications and based upon the military forecast for future quantities and delivery schedules. Widespread military procurements were discontinued as a result of the end of the cold war and the downsizing of the military establishment. Consequently, management made a decision to write off a substantial amount of the military inventory in 2001 and 2002. As a result, we no longer manufacture military products in advance. Rather, we only schedule production as purchase orders are received.

MANUFACTURING
The Company currently rents approximately 7,000 square feet of the facility located at 5 Columbia Road, for a combination of manufacturing and office space. The Company assembles, under normal workload conditions, the product it sells; however, to accommodate the peak demands that occur from time to time, we can engage a number of subcontractors to assemble boards to our specifications. All assemblies, however, are inspected and fully tested by our quality, engineering and testing departments. We maintain test equipment and every product is burned-in (i.e., each product is run at full power for 48 hours) and tested prior to shipment.

WARRANTY AND SERVICE
We provide a twelve-year warranty on our products, which covers parts and labor. The Company, at its option, repairs or replaces products that are found defective during the warranty period providing proper preventive maintenance procedures have been followed by customers. Repairs that are necessitated by misuse of such products are not covered by our warranty.

In cases of defective products, the customer typically returns them to our facility in Somerville, New Jersey. Our service personnel then replace or repair the defective items and ship them back to the customer. Generally all servicing is completed at our plant and customers are charged a fee for those service items that are not covered by the warranty. We do not offer our customers any formal written service contracts.

RESEARCH AND DEVELOPMENT

New Products –

“GlowWorm” Fiber Optic Detector, an independent standalone product for detection of fiber optic cable failures without the need to cut the cable, will be introduced in January 2010.

The CM-100 platform, is the first of its kind, direct substation hardened communication consolidator that fills the existing gap in substation communications. The hardwired CM-100 will allow our existing products, including the PDR-2000, to operate seamlessly over fiber optics together with existing substation equipment. This system is in final testing and will be ready for production in fiscal 2010.

During fiscal year 2009 we have invested $368,331 in product development.

During fiscal year 2008 we have invested $150,173 in product development.

During fiscal years 2006 and 2007 we have invested $376,713 and $372,723, respectively, in product development.

During fiscal years 2004 and 2005, we invested $93,984 and $177,338, respectively, in product development.

During fiscal year 2002 and 2003, we invested approximately $800,000 and $0, respectively for product development.

During fiscal 2001, we proceeded with the design of the PDR-2000 8- channel digital transfer trip communications product. During fiscal 2001-2002 we invested approximately $774,757 to complete design of the PDR-2000, 8-channel digital transfer trip communications.

The Company also developed a new platform for its GEN-1 products allowing for its use by the Canadian utilities.

PATENTS AND TRADEMARKS
We do not have any patents covering any of our present products. We do have registered trademarks and Copyrights for Conolog and Iniven. We use the name INIVEN for our commercial products. We believe that this name is recognized in our industry. We believe that our prospects are dependent primarily on our ability to offer our customers high quality, reliable products at competitive prices rather than on our ability to obtain and defend patents. We do not believe that our INIVEN name is of material importance to the Company’s business.

GOVERNMENTAL REGULATION
Our manufacturing facilities are subject to numerous existing and proposed federal and state regulations designed to protect the environment, establish occupational safety and health standards and cover other matters. We believe that our operations are in compliance with existing regulations and we do not believe that such compliance has had or will have any material effect upon our capital expenditures, earnings or competitive position. With respect to military sales, we are not subject to any special regulations. The products manufactured are done so in accordance with accepted commercial practices.

EMPLOYEES
As of July 31, 2009, we employed 16 people on a full-time basis, including two in management, two in sales, one clerical, one in accounting, one in purchasing, six in engineering and quality control and three in production. We have enjoyed good labor relations.

None of our employees are represented by a labor union or bound by a collective bargaining agreement. We have never suffered a work stoppage. We believe our future success will depend, in part, on our continued ability to recruit and retain highly skilled management, marketing and technical personnel.

ITEM 2 - DESCRIPTION OF PROPERTY

Our principal executive offices are located at 5 Columbia Somerville, New Jersey. The space consists of approximately 7,000 square feet of which approximately 5,000 square feet is dedicated to manufacturing, production and testing and approximately 2,000 square feet is dedicated to administrative and storage needs. Our current monthly rent expense is $ 4,600. In the opinion of management, the space is adequately covered by insurance.

ITEM 3 - LEGAL PROCEEDINGS

Meyers Associates, L.P. v. Conolog Corporation, Supreme Court of the State of New York, County of New York Index No. 600824/07.

On March 13, 2007, Meyers Associates, L.P. commenced an action against Conolog Corporation, asserting that: (1) Conolog breached a purported contract it had with Meyers pursuant to which it claims Meyers was to act as lead underwriter in connection with a Regulation D securities offering for Conolog, and (2) Conolog misappropriated a purported confidential list of potential investors. Conolog denies the allegations in the complaint and intends to vigorously defend against Meyers’s claims.

On May 7, 2009, The Supreme Court of New York issued a Stipulation of Dismissal, dismissing all claims asserted by Meyers Associates, with prejudice.

Allen Wolfson v. Conolog Corporation, United States District Court for the Southern District of New York, Case Number 08-cv-3790.

On April 22, 2008, Allen Wolfson filed an action against Conolog Corporation, asserting that there was a breach of contract in connection with four consulting contracts allegedly entered into with “plaintiff and entities controlled by plaintiff.” On June 10, 2008, the company filed a motion to dismiss Plaintiff’s complaint on the grounds that the Court lacks personal jurisdiction over the Company or, in the alternative, for Plaintiff’s failure to state a claim upon which relief can be granted. A Stipulation of Dismissal was issued during July 2009.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

N/A

PART II

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

MARKET PRICE FOR COMMON STOCK AND CLASS A WARRANTS

Our Common Stock is traded on the Nasdaq Capital Market, under the symbol CNLG.


	Common Stock

Fiscal Year 2009	High		Low


First Quarter	$	5.85	$	1.85
second Quarter	$	3.15	$	1.25
Third Quarter	$	3.00	$	1.37
Fourth Quarter	$	2.29	$	1.15

	Common Stock

Fiscal Year 2008*	High		Low


First Quarter	$	11.12	$	5.68
second Quarter	$	7.36	$	3.48
Third Quarter	$	4.22	$	2.80
Fourth Quarter	$	3.16	$	0.84

* Represents retroactive application of 1:5 reverse stock split.

As of July 31, 2009, the Company’s Common Stock was held by approximately 450 shareholders of record. Our transfer agent is Continental Stock Transfer & Trust Company, with offices at 17 Battery Place, 8^th floor, New York, New York, telephone number (212) 509-4000. As transfer agent for our shares of common stock the transfer agent is responsible for all record-keeping and administrative functions in connection with the common shares of stock.

Dividends. Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors of the Company. To date, the Company has neither declared nor paid any dividends on its Common Stock or on its Preferred A or Preferred B shares. The Company anticipates that no such dividends will be paid in the foreseeable future. Rather, the Company intends to apply any earnings, if any, to the expansion and development of its business. Any payment of cash dividends on any of its securities in the future will be dependent upon the future earnings of the Company, including its financial condition, capital requirement and other factors, which the Board of Directors deems relevant.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth the information indicated with respect to our compensation plans under which our common stock is authorized for issuance.



			Number of securities
			remaining available for
		Weighted average	future issuance under
	Number of Securities to be issued	exercise price of	equity compensation plans
	upon exercise of outstanding	outstanding options,	(excluding securities
	options, warrants and rights	warrants and rights	reflected in column (a))
	(a)	(b)	(c)


Equity compensation plans approved by security holders	On July 9, 2002 our stockholders approved our 2002 Stock Option Plan under which up to 190,000 shares of our common stock may be granted to our employees, directors and consultants. To date, no options have been granted under this plan. The exercise price of options granted under the 2002 Stock Option Plan will be the fair market value of our common stock on the date immediately preceding the date on which the option is granted.	N/A	190,000


Equity compensation plans not approved by security holders	N/A


Total	190,000

ITEM 6 – SELECTED FINANCIAL DATA

N/A

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Subsequent Event:

The Company entered into a Subscription Agreement (the “Subscription Agreement”), dated as of August 3, 2009 ( the “Closing Date”), with three investors, pursuant to which it sold an aggregate of One Million Dollars of its principal amount of secured convertible notes (the “Notes”). On the Closing Date the Company received gross proceeds of $500,000 and $500,000 (the “Escrowed Funds”) was placed in escrow pursuant to an Escrow Agreement between the Company, the Subscribers and Grushko & Mittman, as escrow agent. The Company paid the placement agent in the transaction $50,000 in fees. Pursuant to the Subscription Agreement, the Company had to file a preliminary proxy statement with the Securities and Exchange Commission by September 2, 2009 seeking approval for the transactions contemplated by the Subscription Agreement and the Company must obtain approval of its shareholders within 90 days of the Closing Date (125 days if the SEC reviews the proxy statement.). On

September 24, 2009, the Company’s shareholders approved the transaction (the “Shareholder Approval”) and the Escrowed Funds were released. After the payment of fees in the amount of $50,000 to to the placement agent in the transaction, the Company received net proceeds of $450,000 (prior to the deduction of other fees and expenses related to the Offering).

The initial interest rate of the Notes was 4% and after the Shareholder Approval, it became 8% per annum. Interest on the notes accrues from the date of the Closing Date is payable quarterly, in arrears, commencing six months after the Closing Date and on the maturity date of the Note. The Conversion Price of the Notes is the lessor of $.78 (the “Fixed Conversion Price”) as may be adjusted (the “Initial Conversion Price”). Commencing six months after the Closing Date, the Conversion Price shall be the lessor of the Fixed Conversion Price or 75% of the lowest three closing bid prices for the Company’s common stock for the ten days prior to when the Note is converted.

The Company also issued the Subscribers Class A Warrants to purchase 2,564,103 shares of the Company’s Common Stock at $1.12 per share. The Class A warrants are exercisable for a period beginning on August 3, 2009 and terminate on August 3, 2014.

Pursuant to the Subscription Agreement, the Company also issued the Subscribers a total of 40,000 class B Warrants. The Class B Warrants entitles the Subscribers at any time after the sooner of six months from the Closing Date or after the Company obtains the Shareholder Approval, until July 3, 2012, to purchase up to $4,000,000 of principal amount of the Company’s 8% notes on the same terms as the Notes. Upon the exercise of the Class B Warrants, the holder of the Class B Warrant will be issued two Class C Warrants for Each share of the Company’s common stock that would be issued on the exercise date of the Class B Warrant assuming the full conversion of the notes issued on such date. For each $100,000 of principal of notes purchased pursuant to the Class B Warrants, the Subscribers will surrender 1,000 Class B Warrants.

The Notes cannot be converted to the extent such conversion would cause the Subscriber, together with such holder’s affiliates, to beneficially own in excess of 4.99% of the of the Company’s outstanding common stock immediately following such conversion.

The Company also entered into a Security Agreement pursuant to which it granted the Subscribers a security interest in its assets. The security interest granted pursuant to the Security Agreement will terminate when the Approval is obtained or the Notes (including outstanding interest due thereon) are repaid.

In connection with the transaction, the Company issued the placement agent (or its employees) warrants to purchase 256,410 shares of the Company’s common stock.

The issuance and sale of the Notes and warrants pursuant to the Subscription Agreement was made in reliance upon the exemption provided in Section 4(2) of the Securities Act and Regulation D promulgated under the Securities Act. No form of general solicitation or general advertising was conducted in connection of the Private Placement. The issuance of the warrant to the selling agent (including its employees and affiliates) was made in reliance upon the exemption provided in Section 4(2) of the Securities Act.

RESULTS OF OPERATIONS

2009 COMPARED to 2008
Product revenue for the fiscal year ended July 31, 2009 totaled $1,485,298 an increase of 21.7% or $264,305 from the product revenue reported for the fiscal year ended July 31, 2008 of $1,220,993. The Company attributes this increase in revenues to long-term contract awards received during this fiscal year. Deliveries on these contracts began in early 2009.

Product cost (Material and Direct labor) for the fiscal year ended July 31, 2009 amounted to $470,392 or 31.7% of product revenues. Product cost for the fiscal year ended July 31, 2008 amounted to $467,081 or 38.2% of product revenues. The Company attributes the decrease in the current year’s product cost as a percentage of revenue and corresponding increase in the current year’s Gross Profit of $373,165 to the standardizing of costs to build our new PDR-2000 system and the outsourcing of assemblies.

For fiscal year ended July 31, 2009 the Company expensed $82,138 in obsolete inventory parts. This compares to $112,171 of obsolete inventory parts expensed during the fiscal year July 31, 2008.

Total Operating expenses for fiscal July 31, 2009 were $2,672,943 a decrease of $1,700,135 from $4,373,078 reported for fiscal July 31, 2008. The Company attributes this decrease to forgiveness of Officers Salary, reduced legal fees and a decrease in the value of stock compensation costs.

Other expenses for the fiscal year ended July 31, 2009 decreased by $2,540,274 to $695,995 from $3,236,269 for fiscal July 31, 2008. Included in this current years’ expense is a non-cash expense related to the induced conversion benefit of $552,370; a non-cash interest expense related to conversion of debt for $286,584 and the amortization of fees related to the conversion of debt for $123,274.

As a result of the foregoing, the Company reported a net loss applicable to common shares of $2,354,032 or $0.98 per share for fiscal 2009, compared to a net loss applicable to common shares of $6,967,606 or $23.49 per share (as restated for the stock reversal for fiscal 2009).

2008 COMPARED to 2007
Product revenue for the fiscal year ended July 31, 2008 totaled $1,220,993 an increase of 136% or $703,288 from the product revenue reported for the fiscal year ended July 31, 2007 of $517,705. The Company attributes this increase in revenues to new long-term contract awards received during this fiscal year. Deliveries on these contracts began in early 2008.

Product cost (Material and Direct labor) for the fiscal year ended July 31, 2008 amounted to $467,081 or 38.2% of product revenues. Product cost for the fiscal year ended July 31, 2007 amounted to $378,563 or 73.1% of product revenues. The Company attributes the increase in the current year’s product cost of $88,518 and corresponding increase in the current year’s Gross Profit of $614,770 (excluding the write down of obsolete inventory) to the standardizing of costs to build our new PDR-2000 system. Outsourcing of assemblies and the continued use of assembly standards under ISO-9000 also added to this lower cost.

For fiscal year ended July 31, 2008 the Company, in compliance with its inventory management policy, expensed $112,171 of cost relating to obsolete inventory parts. This compares to $1,256,155 of obsolete inventory parts expensed during the fiscal year July 31, 2007.

Total Operating expenses for fiscal July 31, 2008 were $4,373,078 an increase of $817,318 from $3,555,760 reported for fiscal July 31, 2007. The Company attributes this increase to higher legal fees to defend against lawsuits and an increase in the value of stock compensation costs, offset by reduced research and develop costs and stock compliance costs.

Other expenses for the fiscal year ended July 31, 2008 decreased by $391,136 to $3,348,754 from $3,739,890 for fiscal July 31, 2007. Included in this expense is a non-cash expense related to the induced conversion benefit of $1,387,087; a non-cash interest expense related to conversion of debt for $606,598; the amortization of fees related to the conversion of debt for $504,740 and the write off of discount on converted debt of $864,892.

As a result of the foregoing, the Company reported a net loss applicable to common shares of $6,967,606 or $4.70 per share for fiscal 2008, compared to a net loss applicable to common shares of $8,121,067 or $12.78 per share (as restated for stock reversal for fiscal 2007.

LIQUIDITY AND CAPITAL RESOURCES
Working capital at July 31, 2009 was $2,028,582 compared to $2,049,641 at year ended July 31, 2008.

Accounts receivable have decreased from $360,846 at July 31, 2008 to $245,980 at July 31, 2009. This decrease of $114,866 is the result of delay by customers in accepting shipments.

The Company expects to meet its cash requirements for the next twelve months through existing cash balances and cash generated from operations. However, we anticipate that we may require additional financing to expand our operations. We cannot guarantee that we will be able to obtain any additional financing or that such additional financing, if available, will be on terms and conditions acceptable to us. The inability to obtain additional financing

should it be required will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our development plans

INFLATION
Management believes that the results of operations have not been affected by inflation and management does not expect inflation to have a significant effect on its operations in the future.

CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements and reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management uses its best judgment in valuing these estimates and may, as warranted, solicit external professional advice and other assumptions believed to be reasonable. The following critical accounting policies, some of which are impacted significantly by judgments, assumptions and estimates, affect the Company’s consolidated financial statements.

INCOME RECOGNITION
Revenue is recorded in accordance with the guidance of the SEC’s Staff Accounting Bulletin (SAB) No. 104, which supersedes SAB No. 101.Revenue from product sales are recognized at the time of shipment (when title has passed) upon fulfillment of acceptance terms; products are not sold on a conditional basis. Therefore, when delivery has occurred the sale is complete as long as the collection of the resulting receivable is probable.

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The preparation of financial statements requires our management to make estimates and assumptions relating to the collectivity of our accounts receivable. Management specifically analyzes historical bad debts, customer credit worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. The Company has a concentration risk in trade accounts receivable with significant sales to the government and local agencies. The credit evaluation process has mitigated the credit risk, such losses have been minimal, and within management expectations.

INVENTORY VALUATIONS, COMPONENTS AND AGING
Inventories are valued at the lower cost or market. Determined by a first-in, first-out (“FIFO”) method.The Company’s products are used in radio and other transmissions, telephone and telephone exchanges, air and traffic controls, automatic transmission of data for utilities, tele-printing of transmission data such as news and stock market information and for use by electric utilities in monitoring power transmissions lines for faults and/or failures.

The Company currently manufactures and supports over 400 products and assemblies that have been in the market place since 1970. The Company’s inventory represents approximately 10,000 different components and 2,500 assemblies. The Company presents its inventory in three categories, Finished Goods, Work-in-Process and Raw Materials. Finished Goods represents products that have been completed in connection with specific orders and are awaiting shipment. Finished Goods can consist of produces like the PDR-2000, PTR-1500 and 1000, Gen 1, 98 and 68 series. Work-in-Process represents components that have been requisitioned from the warehouse and are being assembled in the assembly areas. Depending on the configurations required by a customer, products are completed and tested within 8 to 10 business days. Raw Materials represent components in their original packaging stored in a secured warehouse area, and may consist, in part, of Face plates, PC boards, Digital screen assemblies, Guide rails, Capacitors, Terminals, Power supplies, Process ships, Chassis and racks, Relays, Keypads and Resistors.

The Company provides a twelve-year warranty on all commercial products and is required by Government regulation to design and produce military products with a minimum 25-year operating life in addition to shelf life.

Every component, regardless of age, has been purchased to meet the above criteria and may be used in any and all above said assemblies. Management believes that this inventory, which is minimally adequate, is required to implement the Company’s commitments to military requirements for present and delivered orders.

The Company, following inventory analysis and repeated annual testing, established a 3-year rule for maintaining inventory, which requires a write-down policy for inventory parts depending on their age. The inventory is tested annually applying its 3-year rule and the Company classifies as current assets only that amount of inventory it expects to realize in the next one-year operating cycles, any balance of the inventory is classified as non-current. Any parts which have not been used for 3 years are valued at zero. Any parts, written down to a zero value under the 3-year rule, are maintained in inventory to satisfy the requirements under our long-term warranty programs.

WARRANTY
The Company provides a twelve-year warranty on its products; the warranty covers parts and labor. The Company, at its option, repairs or replaces products that are found defective during the warranty period providing proper preventive maintenance procedures have been followed by customers. Repairs necessitated by misuse of such products are not covered by our warranty. In cases of defective products, the customer typically returns them to the Company’s facility in Somerville, New Jersey. The Company’s service personnel will replace or repair the defective items and ship them back to the customer. All servicing is completed at the Company’s main facility and customers are charged a fee for those service items that are not covered by the warranty. We do not offer our customers any formal written service contracts.

INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future federal and state income taxes.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of Conolog Corporation, together with notes and the Independent Registered Public Accountants’ Report, are set forth immediately following Item 14 of this Form 10-K.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

It is management’s responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). Our management, including our principal executive officer and our principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of a within ninety (90) days of the filing date of this Form 10-K Annual Report. Based upon their evaluation as of the end of the period covered by this report, the Company’s chief executive officer and chief financial officer concluded that, the Company’s disclosure controls and procedures are not effective to ensure that information required to be included in the Company’s periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.

The Company’s board of directors was advised by Bagell, Josephs, Levine & Company, L.L.C., the Company’s independent registered public accounting firm, that during their performance of audit procedures for 2009 Bagell, Josephs, Levine & Company, L.L.C. identified a material weakness as defined in Public Company Accounting Oversight Board Standard No. 2 in the Company’s internal control over financial reporting.

The deficiency consisted primarily of inadequate staffing and supervision that could lead to the untimely identification and resolution of accounting and disclosure matters and failure to perform timely and effective reviews. However, the size of the Company prevents us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10K that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2009. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on our assessment our management has concluded that our control and procedures were not effective as of the end of the period covered by this Report due to the existence of the significant internal control deficiencies described below.

The deficiency consisted primarily of inadequate staffing and supervision that could lead to the untimely identification and resolution of accounting and disclosure matters and failure to perform timely effective reviews. This annual report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.

ITEM 9B - OTHER INFORMATION

None

PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth certain information regarding the officers and directors of the Company as of October 23, 2009.


Name	Age	Position

Robert S. Benou	74	Chairman, Chief Executive Officer, Chief Financial Officer and Director

Marc R. Benou	40	President, Chief Operating Officer, Secretary and Director

Louis S. Massad	72	Director

Edward J. Rielly	40	Director

David M. Peison	40	Director

Thomas Fogg	72	Officer, Vice President-Engineering

Robert S, Benou
Robert S. Benou has been the Company’s Chairman and Chief Executive Officer since May 1, 2001. He is also the Company’s Chief Financial Officer. From 1968 until May 1, 2001, he served as the Company’s President. Mr. Benou is responsible for material purchasing and inventory control. From June 2001 until August 2005, Mr. Benou served as a director of Henry Bros. Electronics, Inc. (formerly known as Diversified Security Solutions, Inc.), a publicly held company that is a single-source/turn-key provider of technology-based security solutions for medium and large companies and government agencies. Mr. Benou is also served as a member of the Board of Directors of eXegenics Inc. from February 2004 to December 2006. The common stock of eXegenics Inc. is traded on the OTC Bulletin Board. Mr. Benou is a graduate of Victoria College and holds a BS degree from Kingston College, England and a BSEE from Newark College of Engineering, in addition to industrial management courses at Newark College of Engineering. Robert S. Benou is the father of Marc R. Benou.

Marc R, Benou
Marc R. Benou has been the Company’s President and Chief Operating Officer since May 1, 2001. Mr. Benou joined the Company in 1991 and is responsible for new product development and supervision of sales and marketing. From March 1995 until May 1, 2001, he served as Vice President. Mr. Benou has been on the company’s Board and has served as the Company’s assistant secretary since March 1995. Mr. Benou attended Lehigh and High Point University and holds a BS degree in Business Administration and Management. Marc R. Benou is the son of Robert S. Benou, the Company’s Chairman and Chief Executive Officer.

Louis S. Massad
Louis S. Massad has been a Director of the Company since April 1995. Mr. Massad was Chief Financial Officer and a Director of Henry Bros. Electronics, Inc. (formerly known as Diversified Security Solutions, Inc.), from 2000 until August 2003. From 1997 to 2000, Mr. Massad was a consultant to Diversified Security Solutions, Inc. From 1986 to 1997, Mr. Massad was a Vice President, Chief Financial Officer and Director of Computer Power Inc. Mr. Massad holds a BS and MS degree from Cairo University (Egypt) and an MBA from Long Island University, New York.

Edward J. Rielly
Edward J. Rielly has been a Director of the Company since January 1998. Mr. Rielly is a Senior Application Developer with Household International, a financial corporation. From March 2000 to November 2001, Mr. Rielly was a Senior Consultant with Esavio Corporation. From February 1998 to February 2000, Mr. Rielly was an Application Developer with Chubb Corporation. From 1993 to 1998, Mr. Rielly was an Application Developer with the United States Golf Association. Mr. Rielly is a graduate of Lehigh University and holds a BS in Computer Science.

Thomas R. Fogg
Thomas R. Fogg joined the Company in 1976 as Chief Engineer responsible for analog and guidance projects. Since 1986, Mr. Fogg has served as Vice President-Engineering; he led the design team in the development of the Company’s commercial products. Mr. Fogg holds a BSEE degree from Lafayette College and a MSEE degree from Rutgers University. Mr. Fogg is a fellow of the Institute of Electrical and Electronic Engineers and has published articles on delay equalization and the use of crystal resonators.

David M. Peison
David M. Peison has been a Director of the Company since October 2004. Since 2005, Mr. Peison has been vice president with the emerging markets division of HSBC. From 2002 until 2005, Mr. Peison was with Deutsche Bank’s global markets division in New York City. From 1992 to 2000, Mr. Peison was in a Private Law Practice in Florida and New York City. Mr. Peison holds an MBA from Emory University in Atlanta, Ga., a JD from The Dickinson School of Law of Pennsylvania State University and is admitted to Florida, New York and Massachusetts Bars. Mr. Peison obtained his BA degree from Lehigh University in Bethlehem, Pa.

Directors hold office until the annual meeting of the Company’s stockholders and the election and qualification of their successors. Officers hold office, subject to removal at anytime by the Board, until the meeting of directors immediately following the annual meeting of stockholders and until their successors are appointed and qualified.

Audit Committee
The Company’s Board of Directors has determined that David M. Peison is the Audit Committee’s Financial Expert and that he is “independent” defined under National Association of Securities Dealers Automated Quotations system.

The Company has a standing Audit Committee, the members of which are, Louis Massad, Edward J. Rielly and David M. Peison.

Changes in Nominating Procedures

None

Section 16(a) Compliance
Section 16(a) of the Exchange Act, requires our directors and officers, and persons who own more than 10% of our Common Stock, to file with the Securities and Exchange Commission initial reports of beneficial ownership and reports of changes in beneficial ownership of our Common Stock and other equity securities. Our officers, directors and greater than 10% beneficial owners are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended July 31, 2008, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with except that Form 4’s for David Peison, Edward Rielly, Robert Benou and Marc Benou were not timely files. These Forms have since been filed..

Code of Ethics
The Corporation has adopted a Code of Ethics. This Code is publicly available on the Company’s internet website www.conolog.com.

ITEM 10 A- EXECUTIVE COMPENSATION

The following table sets forth the total compensation paid to and accrued by each executive officer during the prior three fiscal years.


Annual Compensation								Long-Term Compensation


Name & Title	Year- End July 31^st	Salary			Bonus			Restricted Stock Award			Closing Price On the Date of Restricted Stock Award		Securities Underlying Option/ SARS	Other*

Robert Benou, Chairman	2009	$	110,833	(4)	$	0			0		$	0	—	$	16,000
Chief Executive Officer	2008	$	348,333		$	70,000	(1)		237,500	(3)	$	0.67	—	$	21,500
CFO and Director	2007	$	337,300		$	150,000			144,000		$	0.41	—	$	18,000


Marc Benou, President	2009	$	208,516		$	0			0		$	0	—	$	0
Chief Operating Officer	2008	$	173,949		$	40,000	(2)		237,000	(3)	$	0.67	—	$	0
Secretary and Director	2007	$	143,625		$	100,000			140,000		$	0.41	—	$	0


Thomas Fogg	2009	$	43,040		$	0			0		$	0	—	$	0
Vice-President	2008	$	43,040		$	0			25,000(3	)	$	0.67	—	$	0
Engineering	2007	$	40,602		$	0			10,000		$	0.41	—	$	0

* Other compensation consisted of a car allowance.


	1.	The Company paid Robert Benou’s 2008 bonus by July 31, 2008.

	2.	The Company paid Marc Benou’s bonus by July 31, 2008.

	3.	On May 21, 2008, our stockholders approved the granting of 800,000 shares of our common stock to our directors, officers and employees.

	4.	During fiscal 2009, Robert Benou forgave $286,467 of his salary.

Outstanding equity awards at fiscal year end.


Name	Option Awards					Stock Awards

	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying of Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

Robert Benou	0	0	0	0	0	221,000	221,000	0	0

Marc Benou	0	0	0	0	0	230,000	230,000	0	0

On July 9, 2002 our stockholders approved our 2002 Stock Option Plan under which up to 190,000 shares of our common stock may be granted to our employees, directors and consultants. To date, no options have been granted under this plan. The exercise price of options granted under the 2002 Stock Option Plan will be the fair market value of our common stock on the date immediately preceding the date on which the option is granted.

EMPLOYMENT AGREEMENTS
Mr. Robert Benou is serving under an employment agreement commencing June 1, 1997 and ending May 31, 2002, which pursuant to its terms, renews for one-year terms until cancelled by either the Company or Mr. Benou. Mr. Benou’s annual base salary as of July 31, 2009 was $397,300 and increases by $20,000 annually on June 1^st of each year. In addition, Mr. Benou is entitled to an annual bonus equal to 6% of the Company’s annual “income before income tax provision” as stated in its annual Form 10-K. The employment agreement also entitles Mr. Benou to the use of an automobile and to employee benefit plans, such as; life, health, pension, profit sharing and other plans. Under the employment agreement, employment terminates upon death or disability of the employee and the employee may be terminated by the Company for cause.

Mr. Marc Benou is serving under an employment agreement commencing June 1, 1997 and ending May 31, 2002, which pursuant to its terms, renews for one-year terms until cancelled by either the Company or Mr. Benou. Mr. Benou’s annual base salary as of July 31, 2009 was $203,700 and he receives annual increases of $12,000 on June 1^st of each year. Mr. Benou is entitled to an annual bonus equal to 3% of the Company’s annual “income before income tax provision” as stated in its annual Form 10-K. The employment agreement also entitles Mr. Benou to the use of an automobile and to employee benefit plans, such as; life, health, pension, profit sharing and other plans. Under the employment agreement, employment is terminated upon death or disability of the employee and employee may be terminated by the Company for cause.

COMPENSATION OF DIRECTORS
No director of the Company receives any cash compensation for his services as such, but directors may receive stock options pursuant to the Company’s stock option plan and grants of the Company’s common stock. Currently, the Company has three directors who are not employees, Messrs. Louis Massad, David Peison and Edward Rielly. The following table summarizes the compensation for our non-employee directors for the fiscal year ended July 31, 2009.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of July 31, 2009, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common

stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated.

This table is prepared based on information supplied to us by the listed security holders, any Schedules 13D or 13G and Forms 3 and 4, and other public documents filed with the SEC.

Under the rules of the Securities and Exchange Commission, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.

Unless otherwise noted, the address for each of the named individuals is c/o Conolog Corporation, 5 Columbia Road, Somerville, New Jersey 08876.

Shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. The applicable percentage of ownership at July 31, 2009 is based on 1,841,491 shares issued and outstanding.


Name and Title	Amount and Nature of Beneficial Ownership	Percent of Class

Robert S. Benou, Chairman, Chief Executive Officer Chief Financial Officer and Director	382,667	20.80	%
Marc R. Benou, President, Chief Operating Officer, Secretary and Director	311,223	16.90	%
Louis Massad, Director	35,000	1.90	%
Edward J. Rielly, Director	35,000	1.90	%
David M. Peison, Director	35,000	1.90	%
Thomas Fogg, Vice President -Engineering	30,000	1.60	%

All Officers and Directors as a Group (6 persons)	828,890	45.00	%

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORS INDEPENENCE

Certain relationships and Related Transactions

None

Board determination of Independence

Messrs. Massad, Rielly and Peison are each “independent” as that term is defined under the National Association of Securities Dealers Automated Quotation system.

ITEM 13 - EXHIBITS

(a) Exhibits.

Index of Exhibits


Exhibit No.		Description of Exhibits

3.1		Certificate of Incorporation - incorporated by reference to the Registrant’s Exhibit 3.01 to Registration Statement on Form S-1 (File No. 2-31302).

3.1.1		Certificate of Amendment of Certificate of Incorporation - incorporated by reference to Exhibit 3.02 to the Registrant’s Registration Statement on Form S-1 (File No. 2-31302).

3.1.2		Certificate of Amendment of Certificate of Incorporation incorporated by reference to Exhibit 4 to the Registrant’s Current Report on Form 8-K for July 1971.

3.1.3		Certificate of Ownership and Merger with respect to the merger of Data Sciences (Maryland) into the Registrant and the change of Registrant’s name from “Data Sciences Incorporated” to “DSI Systems, Inc.” - incorporated by reference to Exhibit 3.03(a) to the Registrant’s Registration Statement on Form S-1 (File No. 2-31302).

3.1.4		Certificate of the Designation, Preferences and Relative, Participating, Option or Other Special Rights and Qualifications, Limitations or Restrictions thereof of the Series A Preferred Stock (par value $.50) of DSI Systems, Inc. - incorporated by reference to Exhibit 3.04 to the Registrant’s Registration Statement on Form S-1 (File No. 2-31302).

3.1.5		Certificate of the Designation, Preferences and Relative, Participating, Option or Other Special Rights and Qualifications, Limitations or Restrictions thereof of the Series B Preferred Stock (par value $.50) of DSI Systems, Inc. - incorporated by reference to Exhibit 1 to the Registrant’s Current Report on Form 8-K for November 1972.

3.1.6		Certificate of Ownership and Merger respecting merger of Conolog Corporation into the Registrant and the changing of the Registrant’s name from “DSI Systems, Inc.” to “Conolog Corporation” - incorporated by reference to Exhibit 3 to the Registrant’s Current Report on Form 8-K for June 1975.

3.2		Amended By-Laws - incorporated by reference to Exhibit 3(h) to the Registrant’s Annual Report on Form 10-K for the fiscal year ended July 31, 1981.

4.1		Specimen Certificate for shares of Common Stock (1)

4.2		Form of common Stock Purchase Warrant, dated January 19, 2006 (2)

4.3		Form of Convertible Note, dated January 19, 2006 (2)

4.4		Form of Common Stock Purchase Warrant, dated March 12, 2007 (3)

4.5		Form of Convertible Note, dated March 12, 2007 (3)

4.6		Form of Broker’s Common Stock Purchase Warrant, dated March 12, 2007 (3)

4.7		Form of Notes as of August 3, 2009 (7)

4.8		Form of Class A Warrants (7)

4.9		Form of Class B Warrants (7)

4.10		Form of Class C Warrants (7)

10.1		Employment Agreement dated June 1, 1997 between Robert Benou and Conolog Corporation (4)

10.2		Employment Agreement dated June 1, 1997 between Marc Benou and Conolog Corporation (4)

10.3		Conolog Corporation 2002 Stock Option Plan (5)

10.4		Subscription Agreement dated as of January 19, 2006, among Conolog Corporation and the subscribers named therein (2)

10.5		Form of Selling Agent Agreement, dated as of January 18, 2006 (2)


10.6		Subscription Agreement dated as of March 12, 2007 (3).

10.7		Form of Subscription Agreement between Conolog Corporation and the subscribers named therein dated as of August 3, 2009 (7)

10.8		Security Agreement dated as of August 3, 2009 (7)

14.1		Code of Ethics(6)

21.1		List of Subsidiaries*

31.1		Rule 13a-14a/15d-14a Certification of Robert Benou (PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER)*

32.1		Section 1350 Certification of Robert Benou(PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER)*


__________________________

*		Filed herewith
(1)		Incorporated by reference to Registrant’s Registration Statement on Form S-1 (File No. 33-92424).
(2)		Incorporated by reference to Registrant’s Report on Form 8-K filed on January 25, 2006.
(3)		Incorporated by reference to Registrant’s Report on Form 8-K filed on March 14, 2007
(4)		Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 0-8174) as filed on September 12, 1997.
(5)		Incorporated by reference to the Registrant’s Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934 filed on June 25, 2003.
(6)		Incorporated by reference to Registrant’s Annual Report on Form 10-KSB for the fiscal year ended July 31, 2003, filed with the SEC on November 14, 2003.
(7)		Incorporated by reference to the Registrant’s Report on Form 8-K filed on August 6, 2009.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

Bagell, Josephs, Levine & Company LLC was retained by the Company on September 21, 2004 to serve as its independent registered public accountants. Prior to that date, Bagell, Josephs, Levine & Company LLC did not perform any services nor receive any fees from the Company.

Audit Fee
Bagell Josephs Levine & Company LLC billed the Company in the aggregate amount of $47,500 and $45,000 for professional services rendered for their audit of our annual financial statements and their reviews of the financial statements included in our Forms 10Q and 10-QSB for the years ended July 31, 2009 and 2008, respectively.

Audit-Related Fees
No fees were billed for the years ended July 31, 2009 and 2008 for assurance and related services by Bagell, Josephs, Levine & Company LLC that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under the category Audit Fees described above.

Tax Fees
No fees were billed for the years ended July 31, 2009 and 2008 for tax compliance, tax advice, or tax planning services by Bagell, Josephs, Levine & Company LLC that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under the category Audit Fees described above.

All Other Fees
No fees were billed to the company by Bagell, Joseph, Levine & Company LLC for the years ended July 31, 2009 and 2008 for services not described above.

It is the policy of the Company’s Board of Directors that all services other than audit, review or attest services, must be pre-approved by the Board of Directors. All of the services described above were approved by the Board of Directors.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Conolog Corporation


	By:	/s/ Robert S. Benou
November 12, 2009	Chairman, Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons, on behalf of the registrant and in the capacities and on the dates indicated.


November 12, 2009		/s/Robert S. Benou
		Chairman, Chief Executive Officer and
		Chief Financial Officer

November 12, 2009		/s/Marc R. Benou
		President, Chief Operating Officer, Secretary and
		Director

November 12, 2009		/s/Edward J. Rielly
		Director

November 12, 2009		/s/David M. Peison
		Director

Conolog Corporation and Subsidiaries

Consolidated Financial Statements

July 31, 2009 and 2008

Annual Report on Form 10-K

Item 8

Consolidated Financial Statements

July 31, 2009 and 2008

Conolog Corporation and Subsidiaries

Somerville, New Jersey

Form 10-K
Index to the Consolidated Financial Statements
Conolog Corporation and Subsidiaries
July 31, 2009 and 2008


		Page

The following consolidated financial statements of the registrant are included in Item 8:

Report Of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets as of July 31, 2009 and 2008		F-2 - F-3

Consolidated Statements of Operations for the years ended July 31, 2009 and 2008		F-4

Consolidated Statement of Stockholders’ Equity for the years ended July 31, 2009 and 2008		F-5

Consolidated Statements of Cash Flows for the years ended July 31, 2009 and 2008		F-6

Notes to Consolidated Financial Statements		F-7- F-20

BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
Suite J
406 Lippincott Drive
Marlton, New Jersey 08053
(856) 355-5900 Fax (856) 396-0022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Conolog Corporation
Somerville, New Jersey

We have audited the accompanying consolidated balance sheets of Conolog Corporation and Subsidiaries (the “Company”) as of July 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two year period ended July 31, 2009. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Conolog Corporation and Subsidiaries as of July 31, 2009 and 2008, and the consolidated results of its operations and cash flows for each of the years in the two year period ended July 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
Marlton, New Jersey

NOVEMBER 12, 2009

F-1

CONOLOG CORPORATION AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 2009 AND 2008


ASSETS
	2009			2008

Current Assets:
Cash and cash equivalents	$	27,358		$	680,647
Certificate of deposit		-			600,182
Accounts receivable, net of allowance		245,980			360,846
Prepaid expenses and consulting fees		70,843			46,367
Current portion of note receivable		14,864			14,864
Inventory		1,395,452			850,507
Other current assets		551,937			568,529


Total Current Assets		2,306,434			3,121,942


Property and equipment:
Machinery and equipment		1,357,053			1,357,053
Furniture and fixtures		429,765			429,765
Automobiles		34,097			34,097
Computer software		520,622			209,380
Leasehold improvements		30,265			30,265

Total property and equipment		2,371,802			2,060,560
Less: accumulated depreciation		(1,975,098	)		(1,951,725	)

Net Property and Equipment		396,704			108,835


Other Assets:
Deferred financing fees, net of amortization		8,445			295,030
Note receivable, net of current portion		69,846			80,495


Total Other Assets		78,291			375,525


TOTAL ASSETS	$	2,781,429		$	3,606,302

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

F-2

CONOLOG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 2009 AND 2008


LIABILITIES AND STOCKHOLDERS’ EQUITY
	2009			2008

Current Liabilities:
Accounts payable	$	217,456		$	165,601
Accrued expenses		26,132			61,957
Current Convertible debenture, net of discount		34,318			824,853

Total Current Liabilities		277,906			1,052,411


Non-Current Liabilities:	$	-		$	-


Total Liabilities		277,906			1,052,411


Stockholders’ Equity:
Preferred stock, par value $.50; Series A; 4% cumulative; 500,000 shares authorized; 155,000 shares issued and outstanding at July 31, 2009 and 2008, respectively.		77,500			77,500
Preferred stock, par value $.50; Series B; $.90 cumulative; 500,000 shares authorized; 1,197 shares issued and outstanding at July 31, 2009 and 2008, respectively.		597			597
Common stock, par value $0.01; 30,000,000 shares authorized; 1,842,485 and 558,488* shares issued and outstanding at July 31, 2009 and 2008 respectively including 2 shares held in treasury.		18,425			5,574	*
Contributed capital		52,385,432			50,025,998	*
Accumulated deficit		(49,173,964	)		(46,819,934	)
Treasury shares at cost		(131,734	)		(131,734	)
Deferred compensation		(672,733	)		(604,110	)



Total Stockholders’ Equity		2,503,523			2,553,891


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,781,429		$	3,606,302

*Represents retroactive application of 1:5 reverse stock split.

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

F-3

CONOLOG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


	2009			2008

OPERATING REVENUES
Product revenue	$	1,485,298		$	1,220,993


Cost of product revenue
Materials and labor used in production		470,392			467,081
Write down of obsolete inventory parts		-			112,171

Total Cost of product revenue		470,392			579,252


Gross Profit (Loss) from Operations		1,014,906			641,741

Selling, general and administrative expenses
General and adminitsrative		1,235,301			2,094,819
Stock compensation		715,242			1,319,400
Stock compliance		203,006			230,396
Research and development		57,089			150,173
Professional fees		291,741			412,119
Marketing and trade shows		170,564			166,171

Total selling, general and admintrative expenses		2,672,943			4,373,078

Loss Before Other Income (Expenses)		(1,658,037	)		(3,731,337	)

OTHER INCOME (EXPENSES)
Interest expense		(102,379	)		(77,922	)
Interest income		16,265			92,485
Other income		352,347			112,485
Induced conversion cost		(552,370	)		(1,387,087	)
Write off of discount on converted debt		-			(864,892	)
Amortization of deferred loan discount		(286,584	)		(606,598	)
Amortization of deferred financing fees		(123,274	)		(504,740	)

Total Other Income (Expense)		(695,995	)		(3,236,269	)

Loss before provision for income taxes		(2,354,032	)		(6,967,606	)
Provision for income taxes		-			-

NET LOSS APPLICABLE TO COMMON SHARES	$	(2,354,032	)	$	(6,967,606	)

NET LOSS PER BASIC AND DILUTED COMMON SHARE	$	(0.98	)	$	(23.49	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		2,396,924			296,676	*

*Represents retroactive application of 1:5 reverse stock split.

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

F-4

CONOLOG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER EQUITY
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


	Series A			Series B											Contributed														Total

	Preferred Stock			Preferred Stock			Common Stock					Contributed			Capital -		Accumulated			Treasury			Deferred			Prepaid			Stockholders’

	Shares	Amount		Shares	Amount		Shares		Amount			Capital			Warrants		Deficit			Stock			Compensation			Consulting			Equity


Balance at July 31, 2007	155,000	$	77,500	1,197	$	597	193,824	*	$	1,938	*	$	40,915,310	*	$	3,857,593	$	(39,852,326	)	$	(131,734	)	$	(1,319,400	)	$	(120,600	)	$	3,549,478


Conversion of convertible debenture							149,018	*		1,490	*		1,871,754	*																1,873,244
Shares issued for services to be provided							5,000	*		50	*		19,840	*													(19,890	)		19,890
Induced conversion cost													1,387,087	*																1,387,087
Sale of Equity							47,650	*		477	*		1,333,723	*																1,334,200
Interest paid with stock							7,001	*		70	*		38,128	*																38,198
Common shares issued to officers, directors and employees for fiscal 2007							154,900	*		1,549	*		602,561	*										(604,110	)					-
Amortization officers, directors and employee compensation																								1,319,400						1,319,400
Net loss for the Year																		(6,967,606	)											(6,967,606	)

Balance at July 31, 2008	155,000	$	77,500	1,197	$	597	557,393	*	$	5,574	*	$	46,168,403	*	$	3,857,593	$	(46,819,932	)	$	(131,734	)	$	(604,110	)	$	(140,490	)	$	2,553,891


Conversion of convertible debenture							636,571			6,366			907,443																	913,809
Reversal of Shares issued for services to be provided							(5,000	)		(50	)		(19,840	)													19,890			(19,890	)
Shares issued for services to be provided							25,500			255			47,430														(47,685	)		47,685
Induced conversion cost													552,370																	552,370
Interest paid with stock							51,527			515			93,933																	94,448
Reversal of Common shares issued to officers, directors and employees for fiscal 2009							(144,000	)		(1,440	)		(560,160	)										561,600						-
Common shares issued to officers, directors and employees for fiscal 2009							720,494			7,205			1,338,260											(1,345,465	)					-
Amortization officers, directors and employee compensation																								715,242			23,842			715,242
Net loss for the Year																		(2,354,032	)											(2,354,032	)

Balance at July 31, 2009	155,000	$	77,500	1,197	$	597	1,842,485		$	18,425		$	48,527,839		$	3,857,593	$	(49,173,964	)	$	(131,734	)	$	(672,733	)	$	(144,443	)	$	2,503,523

*Represents retroactive application of 1:5 reverse stock split.

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

F-5

CONOLOG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


	2009			2008

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,354,032	)	$	(6,967,606	)
Adjustments to reconcile net loss to net cash used in operations:		-
Depreciation		23,373			24,000
Amortization of deferred compensation		715,242			1,319,400
Amortization of prepaid consulting expense		43,732			120,600
Write off of discount on converted debt		77,500			864,892
Induced conversion cost		552,370			1,387,087
Amortization of deferred loan discount		286,584			606,598
Amortization of deferred financing fees		123,274			504,740
Write down of obsolete inventory parts		82,138			112,171
Changes in assets and liabilities		-
(Increase) decrease in accounts receivable		114,866			(296,078	)
(Increase) decrease in prepaid expenses		(24,476	)		(24,157	)
(Increase) in inventories		(627,083	)		(423,824	)
(Increase) decrease in other current assets		16,592			(123,393	)
Increase in accounts payable and accrued expenses		17,042			104,213

Net cash used in operations		(952,878	)		(2,791,357	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(311,242	)		-
Purchase of certificates of deposit		-			(3,697,670	)
Redemption of certificates of deposit		600,182			5,134,818

Net cash used in investing activities		288,940			1,437,148

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock and warrants		-			1,334,200
Proceeds from note receivable		10,649			13,645

Net cash provided by financing activities		10,649			1,347,845

NET (DECREASE) IN CASH AND CASH EQUIVALENTS		(653,289	)		(6,364	)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR		680,647			687,011

CASH AND CASH EQUIVALENTS - END OF YEAR		27,358			680,647

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest expense	$	7,931		$	15,323

Income Taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Debt converted to equity	$	913,809		$	1,873,244

Common stock issued for serices to be provided	$	47,685		$	19,890

Common stock issued for deferred compensation	$	1,345,465		$	604,110

Common stock issued for accrued interest	$	94,448		$	38,198

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

F-6

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


NOTE 1-	NATURE OF ORGANIZATION

	Conolog Corporation (the “Company”) is in the business of design, manufacturing and distribution of small electronic and electromagnetic components and subassemblies for use in telephone, radio and microwave transmissions and reception and other communication areas. The Company’s products are used for transceiving various quantities, data and protective relaying functions in industrial, utility and other markets. The Company’s customers include primarily industrial customers, which include power companies, and various branches of the military.

	The Company formed a wholly owned Subsidiary, Nologoc Corporation. In September 1998, Nologoc Corporation purchased the assets of Atlas Design, Incorporated. In January, 2001, Nologoc Corporation purchased the assets of Prime Time Staffing, Incorporated and Professional Temp Solutions Incorporated. Atlas Design, Prime Time Staffing and Professional Temp Solutions provide short-term and long-term qualified engineering and technical staff, as well as human resource consulting to various industries. In March 2004 the Company ceased operating its staffing business. The assets of the Company’s wholly-owned subsidiary, Nologoc, Inc. trading as Atlas Design, were sold to the Company’s vice-president of operations of Atlas Design.

NOTE 2-	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

	Principles of Consolidation
	The consolidated financial statements include the accounts of Conolog Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

	Cash and Equivalents
	For the purpose of the statements of cash flows, cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of twelve months or less. The Company maintains cash and cash equivalents balances at financial institutions and are insured by the Federal Deposit Insurance Corporation up to $250,000. At times during the year, balances in certain bank accounts may exceed the FDIC insured limits.

	Certificates of Deposits
	At July 31, 2008, the Company had one six month certificate of deposit totaling $600,182, with interest at a rate of 4.3% which matured September 2008. At July 31, 2009 the Company did not have a certificate of deposit.

	Inventories
	Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or market.

	Property, Plant and Equipment
	Property, plant and equipment are carried at cost, less allowances for depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Depreciation was $23,373 and $24,000 for the years ended July 31, 2009 and 2008, respectively. Repairs and maintenance expenditures which do not extend the useful lives of the related assets are expensed as incurred.

F-7

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


NOTE 2-	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	(CONTINUED)

	Research and Development
	Research and Development costs are expensed as incurred. Research and Development costs were $57,089 and $150,173 for the years ended July 31, 2009 and 2008 respectively.

	Revenue Recognition
	Revenue is recorded in accordance with the guidance of the SEC’s Staff Accounting Bulletin (SAB) No. 104, which supersedes SAB No. 101. Revenue from product sales are recognized at the time of shipment (when title and risks and rewards of ownership have passed) upon fulfillment of acceptance terms; products are not sold on a conditional basis. Therefore, when delivery has occurred the sale is complete as long as the collection of the resulting receivable is probable.

	Receivables and Allowance for Doubtful Accounts
	The preparation of financial statements requires our management to make estimates and assumptions relating to the collectivity of our accounts receivable. Management specifically analyzes historical bad debts, customer credit worthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. The Company has a concentration risk in trade accounts receivable with significant sales to the government and local agencies. The credit evaluation process has mitigated the credit risk, such losses have been minimal, and within management expectations.

	Other Current Assets
	In 1998, the State of New Jersey enacted legislation allowing emerging technology and/or biotechnology companies to sell their unused New Jersey Net Operating Loss (“NOL”) Carryover and Research and Development Tax Credits (“R&D” Credits) to corporate taxpayers in New Jersey. During fiscal years ended July 31, 2009 and 2008, the Company entered into agreements to sell its unused NOL’s. Other current assets at July 31, 2009 and 2008 represent the gross proceeds to be received under such contracts.

	Advertising / Public Relations Costs
	Advertising/Public Relations costs are charged to operations when incurred. These expenses were $37,521 and $41,795 for the years ended July 31, 2009 and 2008, respectively.

	Shipping and Handling Costs
	Shipping and handling costs are expensed as incurred and amounted to $30,583 and $17,491 for the years ended July 31, 2009 and 2008, respectively.

	Securities Issued for Services
	The Company accounts for common stock issued for compensation services of Officers, Directors and employees by reference to the fair market value of the Company’s stock on the date of stock issuance.

	Fair Value of Financial Instruments
	The carrying amounts of cash, accounts receivable, other current assets, accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments.

F-8

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


NOTE 2-	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	(CONTINUED)

	Income Taxes
	Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the bases of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future federal and state income taxes.

	Loss Per Share of Common Stock
	Loss per share of common stock is computed by dividing net loss (after dividends on preferred shares) by the weighted average number of shares of Common Stock outstanding during the year. The preferred dividends are not reflected in arriving at the net loss as they are not material and would have no effect on earnings per share available to common shareholders. The number of weighted average shares used in the computations was 2,396,924 and 296,676 (adjusted for a 1:5 reverse stock split) for 2009 and 2008 respectively. The effect of assuming the exchange of Series A Preferred Stock and Series B Preferred Stock in 2009 and 2008 would be anti-dilutive.

	Anti-dilutive shares are not included in the calculation of Earnings per Share.

F-9

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


NOTE 2-	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	(CONTINUED)

	Loss Per Share of Common Stock (Continued)
	The effect of assuming the exercise of outstanding warrants at July 31, 2009 would be anti-dilutive.

	The following is a reconciliation of the computation for basic and diluted EPS:


	July 31, 2009			July 31, 2008

Net Loss	$	(2,354,032	)	$	(6,967,606	)


Weighted-average common shares outstanding (Basic)		2,396,924			296,676	*
Weighted-average common stock equivalents:
Stock options		-			-
Warrants		-			-


Weighted-average common shares outstanding (Diluted)		2,396,924			296,676	*

*Represents retroactive application of 1:5 reverse stock split.


	Use of Estimates
	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-10

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


NOTE 2-	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	(CONTINUED)

	Recent Accounting Pronouncements
	In February 2007 the FASB issued Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – including an amendment of FASB Statement No. 115 effective for financial statements issued for fiscal years beginning after November 15, 2007. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The Company does not expect FAS 159 to have a material impact on its results or financial statements.

	Also in February 2007 the FASB issued Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements- an amendment of ARB No. 51 effective for financial statements issued for fiscal years beginning after December 15, 2008.. The Company does not expect FAS 160 to have a material impact on its results or financial statements.

	In March 2008 the FASB issued Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB No.133 effective for financial statements issued for fiscal years beginning after November 15, 2007.. This Statement requires enhanced disclosures about an entity’s derivatives and hedging activities and thereby improves the transparence of financial reporting. The Company does not expect FAS 161 to have a material impact on its results or financial statements.

	In May 2009 the FASB issued Financial Accounting Standards No. 165, Subsequent Events, effective for financial statements issued for fiscal years beginning after June 15, 2009. The objective of this Statement is to establish principles and requirements for subsequent events. The Company does not expect FAS 165 to have a material impact on its results or financial statements.

	In June 2009 the FASB issued Financial Accounting Standards No. 166, Accounting for Transfer of Financial Assets, an amendment of FASB Statement No. 140. The Company does not expect FAS 165 to have a material impact on its results or financial statements.

	In June 2009 the FASB issued Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R). The Company does not expect FAS 165 to have a material impact on its results or financial statements.

	In June 2009 the FASB issued Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of GAAP, a replacement of FASB No. 162. The Company does not expect FAS 165 to have a material impact on its results or financial statements.

F-11

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


NOTE 3-	INVENTORY

	Inventory consisted of the following as of July 31,


	2009		2008

Finished Goods	$	841,098	$	560,903
Work-in-process		38,368		32,033
Raw materials		515,986		257,571

	$	1,395,452	$	850,507


NOTE 4-	RENTAL COMMITMENTS
	Total rental expense for all operating leases of the Company amounted to approximately $55,680 and $55,680 during the years ended July 31, 2009 and 2008, respectively. The Company currently leases its facilities on a month-to-month basis.

NOTE 5-	DEFERRED FINANCING FEES
	The Company has deferred financing fees of $8,445 and $295,030 for July 31, 2009 and 2008, respectively. These deferred financing fees will be amortized over the life of the loans. Amortization expense for these fees for the years ended July 31, 2009 and 2008 were $123,274 and $504,740 respectively.

NOTE 6-	DEFERRED COMPENSATION
	Pursuant to the Corporation 2008 Stock Incentive Plan, 720,494 common shares of Company stock were issued to current Officers, Directors and Employees during fiscal 2009. These shares were recorded at a value of $1,345,465 and will be expensed during the July 31, 2010 fiscal year.

NOTE 7-	NOTE RECEIVABLE

	The Company entered into an Agreement to Rescind Asset Purchase Agreement, dated October 22, 2002. This Agreement requires the repayment of $148,640, consisting of principal and interest accrued to July 31, 2004. Payments of $1,607 (principal of $1,239 and interest at 5% of $368) begin December 30, 2004 and will continue monthly until the full balance is repaid. The balance of this Note at July 31, 2009 was $84,710.

NOTE 8 -	OTHER CURRENT ASSETS
	The income tax (benefit) is comprised of the following:

F-12

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008

In 1998, the State of New Jersey enacted legislation allowing emerging technology and/or biotechnology companies to sell their unused New Jersey Net Operating Loss (“NOL”) Carryover and Research and Development Tax Credits (“R&D” Credits) to corporate taxpayers in New Jersey. During fiscal year ended July 31, 2009, the Company entered into an agreement under which it will sell $551,937 of its NOL carryover. The total net proceeds of this transaction will amount to approximately $486,000 and a portion is recorded as other income in the accompanying financial statements.

Deferred taxes are recognized for temporary differences between the bases of assets and liabilities for financial statement and income tax purposes, and net operating losses.

The temporary differences causing deferred tax benefits are primarily due to net operating loss carry forwards. The Company has established a valuation allowance at the full value of the deferred tax asset.

At July 31, 2009 and 2008, the Company has net operating loss carryforwards for federal and state income tax (Book) purposes of approximately $49,000,000 and $46,800,000 respectively, which is available to offset future Federal and State taxable income through 2029.

There was no provision for income taxes for the year ended July 31, 2009 and July 31, 2008.


	2009			2008

Deferred tax asset
	$	17,150,000		$	16,380,000
Less: Valuation allowance	$	(17,150,000	)	$	(16,380,000	)


		-			-


NOTE 9- PROFIT SHARING PLAN


	The Company sponsors a qualified profit sharing plan that covers substantially all full time employees. Contributions to the plan are discretionary and determined annually by management. No contributions to the plan were made during the years ended July 31, 2009 and 2008.

	The Plan also provides an employee savings provision (401(k) plan whereby eligible participating employees may elect to contribute up to the maximum allowed under the IRS code to an investment trust. For tax year 2009 this maximum allowable deferred contribution was $16,500 ($21,500 for employee over age 59 ½). The Company made matching contributions to the plan of $98,893 and $180,619 for the fiscal years ended July 31, 2009 and 2008 respectively.

F-13

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008

NOTE 10- STOCKHOLDERS’ EQUITY


	The Series A Preferred Stock provides 4% cumulative dividends, which were $123,883 ($0.80 per share) in arrears at July 31, 2009. In addition, each share of Series A Preferred Stock may be exchanged for one share of Common Stock upon surrender of the Preferred Stock and payment of $48,000 per share. The Company may redeem the Series A Preferred Stock at $.50 per share plus accrued and unpaid dividends.

	The Series B Preferred Stock provides cumulative dividends of $0.90 per share, which were $41,016 ($34.27 per share) in arrears at July 31, 2009. In addition, each share of Series B Preferred Stock is convertible into .005 of one share of Common Stock.

	On January 19, 2006, pursuant to a Subscription Agreement, the Company sold and issued to three Subscribers Convertible Notes having an aggregate principal balance of $1,250,000 which are convertible into 1,000,000 shares of common stock at a conversion price of $1.25 per share, and warrants to purchase 1,000,000 shares of common stock at a price of $0.9579 per share. The Warrants are exercisable as of April 19, 2006 and terminate on the fifth year anniversary date. Interest payable on these notes accrues at a rate of 5% per annum. The convertible notes and warrants have been recorded in compliance with APB-14.

	The $1,250,000 of proceeds attributed to the Convertible Debenture are recorded based upon their relative fair value. The value assigned to the warrants of $401,363 has been recorded as a discount to the convertible debenture. Additionally, the warrants valued at $0.9579 per share represents a Beneficial Conversion feature calculated at their intrinsic value and amounted to $46,157. This beneficial conversion feature has been recorded as a discount to the convertible debenture. This aggregate discount to the debt of $447,520 will be amortized over the life of the debt using the effective interest method.

	At a Special Meeting of the shareholders held on August 2, 2006 a proposal to amend the Certificate of Incorporation to give effect to a one-for-six reverse stock split of the common stock of the Company was approved by the stockholders. The reverse split was effected on August 4, 2006.

	Pursuant to a Subscription Agreement dated January 19, 2006, the Company sold and issued to three Subscribers Convertible Notes having an aggregate principal balance of $1,250,000 which as a result of the reverse split are convertible into 166,667 (the “Note Shares”) post split shares of (post 1-for-6 stock reverse split) common stock at a post split conversion price of $7.50, and warrants to purchase 166,668 shares of (post 1-for-6 stock reverse split) common stock at a post split exercise price of $5.7474 per share (the “Conversion Price”). Pursuant to an agreement dated as of September 28, 2006, between the Company and the selling shareholders who were parties to the January 19, 2006 Subscription Agreement (the “Subscribers”), the Company reduced the warrant exercise price of warrants held by the Subscribers to $1.25 so long as such warrants were exercised by October 31, 2006, after which time the warrant exercise price would revert to $5.7474, subject to adjustment as provided in the warrants. Pursuant to an agreement between the Company and First Montauk Securities Corp. (the placement agent in the private placement with the selling shareholders who were parties to the January 19, 2006 Subscription Agreement) the Company reduced the exercise price of warrants issued to First Montauk Securities Corp. and/or its transferees to $1.25. As of January 31, 2007 all of the Subscribers and some of the First Montauk Securities Corp. warrants, amounting to 191,667 warrants were exercised at a conversion price of $1.25 per share. The Company received a Gross amount of $239,584 for these warrants.

	As permitted by the January 19, 2006 Subscription Agreement, on November 30^th, the Company reduced the Conversion Price to $1.10 per share. Any shares in excess of the Notes Shares will not be registered under the Securities Act of 1933, as amended, and, therefore, may not be offered for sale, pledged or hypothecated in the absence of an effective registration statement or an opinion of counsel reasonably satisfactory to the Company that such registration is not required.

F-14

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


	In January 2007, the Company reduced the original conversion prices of their outstanding debentures from $7.50 to $1.10. Subsequent to the reduction in the conversion price the debt holders exercised their rights to convert. The incremental consideration of the shares issued in the conversion was valued at $2,705,457 and recorded as induced conversion costs in the accompanying statement of operations.

	In connection with this conversion, the amortization of deferred loan costs of $174,147 and the amortization of deferred loan discount of $363,610 were fully written off.

	On March 12, 2007 we completed a private placement of an aggregate of $2,825,000, principal amount, of Convertible Debentures with eight investors. The Convertible Debentures are convertible into an aggregate of 1,412,500 shares of the common stock of the Company.

	The Conversion Price of the Convertible Debentures is $2.00 per share. The investors have also received warrants to purchase an aggregate of 1,412,500 shares of the Company’s common stock at an exercise price of $2.88 per share, exercisable beginning at any time on the sooner of September 8, 2007 or the date the Company’s stockholders approves the issuance of the Company’s common stock issuable on conversion of the Convertible Debentures (if such approval is required by the applicable rules of the Nasdaq) through the fifth anniversary of the issuance. In addition, the selling agent (including certain of its employees and affiliates) was granted a warrant to acquire 282,500 shares of the Company’s common stock. The Company received net proceeds of $2,487,500. The private placement was approved by the Company’s shareholders, as required by applicable Nasdaq rules, on May 15, 2007.

	On September 7, 2007, the Company’s Board of Directors voted unanimously to adjust the original conversion price of their outstanding debentures from $2.00 to $1.40 resulting in the reduction in Notes payable of $1,246,171.

	On December 26, 2007, the Company’s Board of Directors voted unanimously to further adjust the original conversion price of their outstanding debentures from $1.40 to $1.05. There has been no reduction in Notes payable as of this filing.

	On June 12, 2008, the Company’s Board of Directors voted unanimously to adjust the original conversion price of their outstanding debentures from $4.20 (post reversal) to $1.20 resulting in the reduction in Notes payable of $627,071.

	On November 2, 2007, the Company issued and sold in a private placement (the “Private Placement”), an aggregate of 953,000 shares of common stock (the “Common Shares”) at a purchase price of $1.40 per share, and warrants to purchase 476,500 shares of the Company’s common stock, which are exercisable for a period commencing six months from November 2, 2007 for five years to November 2, 2012, at an exercise price of $1.66 per share (the “Subscriber Warrants”). From the sale of the Common Shares, the Company received net proceeds of $1,163,268 after deducting attorneys’ fees, printing fees and other miscellaneous fees related to the Private Placement.

	On March 20, 2008 Conolog received a Nasdaq Staff Deficiency Letter stating that, as the bid price of the Company’s common stock has closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market set forth in Marketplace Rule 4310(c)(4), in accordance with Marketplace Rule 4310(c) (8)(D), the Company will be provided 180 calendar days, or until September 16, 2008, to regain compliance. If at any time before September 16, 2008, the bid price of the Company’s stock closes at $1.00 per share or more for a minimum of 10 consecutive business days Nasdaq will provide written notification that the Company complies with the rule.

F-15

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


	On May 21, 2008, a Special Meeting of the Company’s shareholders approved a proposed amendment to the company’s certificate of incorporation to effect a one-for-four reverse split of the Company’s common stock which was subsequently approved by the Company’s board of directors.

	On June 25, 2008 Conolog received a Nasdaq Notification Letter stating that the bid price of the Company’s common stock has closed above the minimum $1.00 per share requirement for at least 10 consecutive trading days and accordingly has regained compliance with Marketplace Rule 4310 (c) (4).

	On August 26, 2008 Conolog received a Nasdaq Staff Deficiency Letter stating that, as the bid price of the Company’s common stock has closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market set forth in Marketplace Rule 4310(c)(4), in accordance with Marketplace Rule 4310(c) (8)(D), the Company was provided 180 calendar days, or until February 23, 2009, to regain compliance. During that period the Company regained compliance and was provided with notification of compliance from NASDAQ.

	On February 25, 2009, a the Annual Meeting of the Company’s shareholders approved a proposed amendment to the company’s certificate of incorporation to effect a one-for-five reverse split of the Company’s common stock which was subsequently approved by the Company’s board of directors.

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


			Year End July 31,		Weighted average Exercise Price
	Number of Original Warrants		2008	2009

			1 X 4	1 X 5

Balance st July 31, 2004	470,000				$	1.69
Exercised September 2004	(270,000	)			$	1.59

	200,000		8,333	1,667	$	202.80


Issued February 2005	958,549				$	1.25
Exercised February 2005	(200,000	)			$	1.84

	758,549		31,606	6,321	$	150.00

Issued July 2005	1,440,000		60,000	12,000	$	40.56

Issued January 2006	1,200,000				$	0.96
Exercised February 2007	(1,191,667	)

	8,333		2,083	417	$	25.00

Issued March 2007			423,750	84,750	$	57.60
Issued November 2007			119,125	23,825	$	33.20


Balance July 31,			644,897	128,979	$	3.83


	NOTE -11 CONVERTIBLE DEBENTURES

	On March 12, 2007 a private placement of an aggregate of $2,825,000, principal amount, of Convertible Debentures was placed with eight investors. The Convertible Debentures are convertible into an aggregate of 1,412,500 shares of the common stock of the Company.

	The balance of any un-converted note with simple and unpaid interest (at 6%) will mature on March 12, 2009.

F-16

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008

The Conversion Price of the Convertible Debentures is $2.00 per share. The investors have also received warrants to purchase an Aggregate of 1,412,500 shares of the Company’s common stock at an exercise price of $2.88 per share, exercisable beginning at any time on the sooner of September 8, 2007 or the date the Company’s stockholders approves the issuance of the Company’s common stock issuable on conversion of the Convertible Debentures (if such approval is required by the applicable rules of the Nasdaq) through the fifth anniversary of the issuance. In addition, the selling agent (including certain of its employees and affiliates) was granted a warrant to acquire 282,500 shares of the Company’s common stock.

The Company received net proceeds of $2,487,500.

On September 7, 2007, the Company’s Board of Directors voted unanimously to adjust the original conversion price of their outstanding debentures from $2.00 to $1.40 resulting in the reduction in Notes payable of $ 1,246,171.

On December 26, 2007, the Company’s Board of Directors voted unanimously to further adjust the original conversion price of their outstanding debentures from $1.40 to $1.05. There has been no reduction in Notes payable as of this filing. On June 12, 2008, the Company’s Board of Directors voted unanimously to adjust the original conversion price of their outstanding debentures from $4.20 (post reversal) to $1.20 resulting in the reduction in Notes payable of $627,071.

On September 8, 2008, The Company has reduced the exercise price of the warrants issued in connection with the Subscription Agreement, dated March 12, 2007 (the “Subscription Agreement”), from $1.20 per share to $0.50 per share. As a result of the reduction of the warrant exercise price, pursuant to Section 12 (b) of the Subscription Agreement, the conversion price of the Convertible Notes issued in connection with the Subscription Agreement is now $0.50 per share. Any shares in excess of the shares that already have been registered for sale on conversion of the Notes will not be registered under the Securities Act of 1933, as amended, and, therefore, may not be offered for sale, pledged or hypothecated in the absence of an effective registration statement or an opinion of counsel reasonably satisfactory to the Company that such registration is not required. As a result of the above reductions in exercise and conversion prices, as of October 15, 2008 investors have converted $285,042 of debt for 570,084 common stock shares. The Company recognized an Induced Conversion cost related to these conversions of approximately $180,500.

On March 9, 2009, the Company and holders of its outstanding Convertible Notes agreed that the Maturity Date of the Notes shall be August 31, 2009; the holders of the Notes may convert any principal amount or interest remaining on the Note at an applied conversion rate equal to the lessor of (A) the Fixed Conversion Price or (B) seventy-five percent of the average closing bid price of the Common Stock for the five trading days preceding the date of Notice of Conversion.

The balance of these Convertible debentures at July 31, 2009 was $ 37,950. This final note was converted on August 18, 2009.


NOTE 12-	MAJOR CUSTOMERS

	The following summarizes sales to major customers (each 10% or more of net sales) by the Company:


Year Ended	Total Revenue		Sales to Major Customers		Number of Customers	Percentage of Total

2009	$	1,485,298	$	946,672	3	63.7	%
2008	$	1,220,993	$	756,137	4	61.9	%

F-17

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


NOTE 13-	STOCK OPTION PLAN

	2002 Stock Option Plan

	On April 23, 2002, the Board of Directors of the Company adopted the 2002 Stock Option Plan (“the 2002 Plan”). Under the 2002 Plan, the Company may grant up to 190,000 shares of common stock as either incentive stock options under Section 422A of the Internal Revenue Code or nonqualified stock options. Subject to the terms of the 2002 Plan, options may be granted to eligible persons at any time and under such terms and conditions as determined by the 2002 Stock Option Committee (‘the Committee”). Unless otherwise determined by the Committee, each stock option shall terminate no later than ten years (or such shorter time as may be fixed by the Committee) after the date in which it was granted. The exercise price for incentive stock options must be at least one hundred percent (100%) of the fair market value of common stock as determined on the date of the grant. The exercise price for nonqualified stock options may not be granted at less than eighty-five percent (85%) of the fair market value of the shares on the date of grant.

	As of July 31, 2009 and 2008, there had been no shares granted under the 2002 Plan.

NOTE 14-	SECURITIES ISSUED FOR SERVICES

	During fiscal year July 31, 2009, the Company issued 25,500 shares of common stock to a consultant for services. These shares were for services that extend into the future and are amortized against invoices billed by the consultants for actual services rendered in fiscal year 2010.

	During fiscal year July 31, 2008, the Company issued 25,000 shares of common stock to a consultant for services. These shares were for services that extend into the future and are amortized against invoices billed by the consultants for actual services rendered in fiscal year 2009.

	These services will be performed in fiscal year 2010 and expensed at their fair value of consideration received at the date of the agreement in accordance with EITF 00-18 “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees”.

NOTE 15-	CONTINGENCIES

	Meyers Associates, L.P. v. Conolog Corporation, Supreme Court of the State of New York, County of New York Index No. 600824/07.

	On March 13, 2007, Meyers Associates, L.P. commenced an action against Conolog Corporation, asserting that: (1) Conolog breached a purported contract it had with Meyers pursuant to which it claims Meyers was to act as lead underwriter in connection with a Regulation D securities offering for Conolog, and (2) Conolog misappropriated a purported confidential list of potential investors. Conolog denies the allegations in the complaint and intends to vigorously defend against Meyers’s claims.

F-18

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


	On May 7, 2009, The Supreme Court of New York issued a Stipulation of Dismissal, dismissing all claims asserted by Meyers Associates, with prejudice.

	Allen Wolfson v. Conolog Corporation, United States District Court for the Southern District of New York, Case Number 08-cv-3790.

	On April 22, 2008, Allen Wolfson filed an action against Conolog Corporation, asserting that there was a breach of contract in connection with four consulting contracts allegedly entered into with “plaintiff and entities controlled by plaintiff.” On June 10, 2008, the company filed a motion to dismiss Plaintiff’s complaint on the grounds that the Court lacks personal jurisdiction over the Company or, in the alternative, for Plaintiff’s failure to state a claim upon which relief can be granted. A Stipulation of Dismissal was issued during July 2009.

NOTE 16–	RECLASSIFICATION

	Certain reclassifications have been made to the July 31, 2008 consolidated financial statements to conform to the 2009 presentation. These had no effect on net loss or cash flow for the year ended July 31, 2008.

NOTE 17-	SUBSEQUENT EVENTS

	Conolog Corporation (the “Company”) entered into a Subscription Agreement (the Subscription Agreement”), dated as of August 3, 2009 ( the “Closing Date”), with three investors, pursuant to which it sold an aggregate of One Million Dollars of its principal amount of secured promissory notes (the “Notes”). On the Closing Date the Company received gross proceeds of $500,000 and $500,000 (the “Escrowed Funds”) was placed in escrow pursuant to an Escrow Agreement between the Company, the Subscribers and Grushko & Mittman, as escrow agent. Pursuant to the Subscription Agreement, the Company must file a preliminary proxy statement with the Securities and Exchange Commission by September 2, 2009 seeking approval for the transactions contemplated by the Subscription Agreement and the Company must obtain approval of its shareholders within 90 days of the Closing Date (125 days if the SEC reviews the proxy statement.). Provided shareholder approval is obtained (the “Shareholder Approval”), the Company will receive the Escrowed Funds. In the event that the Shareholder Approval is not obtained (“Shareholder Rejection”), the amount of the Note will decrease to $500,000 and the Escrowed Funds will be returned to the Subscribers. The initial interest rate of the Notes is 4% per annum and upon the shareholder Approval or a Rejection the interest rate will be 8% per annum. Interest shall accrue from the date of the Closing Date and shall be payable quarterly, in arrears, commencing six months after the Closing Date and on the maturity date of the Note. The Conversion Price of the Notes is the lessor of $.78 (the “Fixed Conversion Price”) as may be adjusted (the “Initial Conversion Price”). Commencing six months after the Closing Date, the Conversion Price shall be the lessor of the Fixed Conversion Price or 75% of the lowest three closing bid prices for the Company’s common stock for the ten days prior to when the Note is converted.

	The Company also issued the Subscribers Class A Warrants to purchase 1,282,051 shares of the Company’s Common Stock at $1.12 per share. The Class A warrants are exercisable for a period beginning on August 3, 2009 and terminate on August 3, 2014. Pursuant to the Subscription Agreement, the Company also issued the Subscribers a total of 40,000 class B Warrants.

	The Class B Warrants entitles the Subscribers at any time after the sooner of six months from the Closing Date or after the Company obtains the Approval until July 3, 2012, to purchase up to $4,000,000 of principal amount of the Company’s 8% notes on the same terms as the Notes and 1,000 warrants to purchase 128,205 shares of the Company’s Common Stock at a per share purchase price equal to the lessor of 105 % of the closing bid price of the Company’s common stock or the exercise price of the Class A Warrants.

F-19

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2009 AND 2008


	For each $100,000 of principal of notes purchased pursuant to the Class B Warrants, the Subscribers will surrender 1,000 Class B Warrants.

	The Notes cannot be converted to the extent such conversion would cause the Subscriber, together with such holder’s affiliates, to beneficially own in excess of 4.99% of the of the Company’s outstanding common stock immediately following such conversion. The Company also entered into a Security Agreement pursuant to which it granted the Subscribers a security interest in its assets. The security interest granted pursuant to the Security Agreement will terminate when the Approval is obtained or the Notes, including outstanding interest due thereon) are repaid.

	The Company paid Garden State Securities, Inc., the selling agent for this transaction, a cash fee of $100,000 (10% of the aggregate gross proceeds received by the Company) and issued Garden State (or its employees) warrants to purchase 256,410 shares of the Company’s common stock (20% the shares issuable to the subscribers upon conversion of the Notes).

	Immediately after the closing for the sale of the Notes, 1,841,491 shares of the Company’s common stock were issued and outstanding.

	At a Special Meeting of Shareholders held on September 24, 2009, the Shareholder Approval was obtained. As a result, the Escrowed Funds were released and after the payment of fees in the amount of $50,000 to Garden State Securities, Inc., the placement agent for the transaction, the Company received net proceeds of $450,000 (prior to the deduction of other fees and expenses related to the Offering).

	At the Special Meeting of Shareholders held on September 24, 2009, Shareholder approval was obtained for the Company’s 2009 Restrictive Stock Incentive Plan.

	On September 28, 2009, the Company entered into an Advisory Service Agreement with Garden State Securities Inc. (GSS) to perform certain Advisory and Business services. The Board of Directors has approved the Company to issue 200,000 restricted common shares to GSS.

	On October 21, 2009, Two holders of the Company’s outstanding Convertible Notes dated August 3, 2009 converted principal amounts of $221,256 and interest amounts of $3,855 and issued a total of 288,605 restricted common shares.

	After the above transactions, 3,180,846 shares of the Company’s common stock were issued and outstanding.

F-20


Large accelerated filer \|_\|	Accelerated filer \|_\|
Non-accelerated filer \|X\|	Smaller reporting company \|_\|

CONOLOG CORP - FORM 10-K - November 13, 2009

Attached files

CONOLOG CORP Reports