CONOLOG CORP - FORM 10-Q - February 15, 2013

Attached files

file	filename
EX-4.1 - CONOLOG CORP	c72750_ex4-1.htm
EX-32.1 - CONOLOG CORP	c72750_ex32-1.htm
EX-31.1 - CONOLOG CORP	c72750_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: October 31, 2012


o	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: 000-8174

Conolog Corporation

(Exact Name of registrant as specified in its charter)


Delaware	22-1847286
(State or other Jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

5 Columbia Road
Somerville, NJ 08876
(Address of principal executive offices)

(908) 722-8081
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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


o	Large Accelerated Filer	o	Accelerated Filer

o	Non-Accelerated Filer	x	Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of February 15, 2013, there were 21,669,764 shares outstanding of the registrant’s common stock.

TABLE OF CONTENTS


		Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.		2

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		16

Item 3. Quantitative and Qualitative disclosures about Market Risk.		23

Item 4. Controls and Procedures.		23

Item 1. Legal Proceedings.		24

Item1A. Risk Factors.		24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		24

Item 3. Defaults Upon Senior Securities.		24

Item 4. Mine Safety Disclosures.		24

Item 5. Other Information.		24

Item 6. Exhibits.		24

Signatures		26

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

INDEX TO FINANCIAL STATEMENTS


		PAGE

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2012 AND JULY 31, 2012		2

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2012 AND 2011		3

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY FOR THE THREE MONTHS ENDED OCTOBER 31, 2012		4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED OCTOBER 31, 2012 AND 2011		5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		6

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements.

CONOLOG CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets


	October 31, 2012			July 31, 2012
	(Unaudited)

ASSETS
Current Assets:
Cash and equivalents	$	16,954		$	70,359
Accounts receivable		83,133			132,747
Inventory, net of reserve for obsolescence		463,839			497,235
Prepaid expenses		21,677			43,280
Other current assets		8,357			—

Total Current Assets		593,960			743,621


Property and equipment:
Machinery and equipment		1,362,952			1,362,952
Furniture and fixtures		430,924			430,924
Automobiles		34,097			34,097
Computer software		231,002			231,002
Leasehold improvements		30,265			30,265

Total property and equipment		2,089,240			2,089,240
Less: accumulated depreciation		(2,035,087	)		(2,018,442	)

Net Property and Equipment		54,153			70,798



TOTAL ASSETS	$	648,113		$	814,419


LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable	$	392,805		$	377,427
Accrued expenses		1,931,699			1,734,329
Notes payable - Officer		286,000			190,000

Total Current Liabilities		2,610,504			2,301,756



Total Liabilities		2,610,504			2,301,756


COMMITMENTS AND CONTINGENCIES

Stockholders’ Deficiency:
Preferred stock, par value $.50; Series A; 4% cumulative; 500,000 shares authorized 155,000 shares issued and outstanding at October 31, 2012 and July 31, 2012, 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 October 31, 2012 and July 31, 2012, respectively		597			597
Common stock, par value $0.01; 30,000,000 shares authorized; 21,629,762 shares issued at October 31, 2012 and 21,592,450 shares issued at July 31, 2012, respectively		216,298			215,925
Contributed capital		80,879,910			80,873,283
Accumulated deficit		(83,004,962	)		(82,522,908	)
Less: Treasury shares at cost - 2 shares		(131,734	)		(131,734	)

Total Stockholders’ Deficiency		(1,962,392	)		(1,487,337	)


TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	648,112		$	814,419

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

CONOLOG CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended October 31,
(Unaudited)


	2012			2011

OPERATING REVENUES
Product revenue	$	248,993		$	58,437


Cost of product revenue
Cost of goods sold		141,900			28,420


Total Cost of product revenue		141,900			28,420


Gross Profit from Operations		107,093			30,017


Operating Expenses
General and administrative		528,358			615,043
Research and development		22,810			14,295
Selling expenses		33,647			15,712

Total operating expenses		584,815			645,050


Loss from operations		(477,722	)		(615,033	)


OTHER INCOME (EXPENSES)
Interest expense		(3,000	)		(6,025	)
Interest income		—			47

Total Other Income (Expense)		(3,000	)		(5,978	)


Net Loss before income taxes benefit (expense)		(480,722	)		(621,011	)

Income tax benefit (expense)		(1,332	)		2,639


NET LOSS APPLICABLE TO COMMON SHARES	$	(482,054	)	$	(618,372	)


Net Loss per basic and diluted common share	$	(0.02	)	$	(0.04	)


Weighted Average number of common shares outstanding		21,602,682			13,845,073

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

Conolog Corporation and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficiency)
For the Three Months Ended October 31, 2012


	Preferred Stock Series A				Preferred Stock Series B				Common Stock										Treasury Stock					Total Stockholders’ Equity (Deficiency)
													Contributed Capital			Accumulated Deficit
	Shares		Amount		Shares		Amount		Shares		Amount		Contributed Capital			Accumulated Deficit			Shares		Amount


Balance at July 31, 2012		155,000	$	77,500		1,197	$	597		21,592,450	$	215,925	$	80,873,283		$	(82,522,908	)		2	$	(131,734	)	$	(1,487,337	)

Issuance of Common Stock and Warrants Pursuant to Private Placements										28,000		280		6,720											7,000
Issuance of Anti-Dilution shares										9,312		93		(93	)										0
Net loss for the Period																	(482,054	)							(482,054	)


Balance at October 31, 2012		155,000	$	77,500		1,197	$	597		21,629,762	$	216,298	$	80,879,910		$	(83,004,962	)		2	$	(131,734	)	$	(1,962,391	)

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

CONOLOG CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended October 31,
(Unaudited)


	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(482,054	)	$	(618,372	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation		16,645			4,166

Changes in assets and liabilities
(Increase) decrease in accounts receivable		49,614			456,981
(Increase) decrease in prepaid expenses		21,603			10,684
(Increase) decrease in inventories		33,396			(73,789	)
(Increase) decrease in other current assets		(8,358	)		259
Increase (decrease) in accounts payable		15,378			(110,499	)
Increase (decrease) in accrued expenses		197,371			147,489

Net cash used in operations		(156,405	)		(183,081	)

CASH FLOWS FROM INVESTING ACTIVITIES


Net cash used in investing activities		—			—

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		7,000			511,407
Proceeds of Notes Payable - Officer		100,000			—
Repayments of Notes Payable - Officer		(4,000	)		(86,350	)

Net cash provided by financing activities		103,000			425,057


NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(53,405	)		241,976
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		70,359			7,907


CASH AND CASH EQUIVALENTS - END OF PERIOD	$	16,954		$	249,883

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

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

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 located primarily throughout the United States, 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 provided 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 whollyowned subsidiary, Nologoc, Inc. trading as Atlas Design, were sold to the Company’s vice-president of operations of Atlas Design.

The accompanying unaudited condensed consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed consolidated financial statements is unaudited but in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed consolidated financial statements, including notes, have been prepared in accordance with the requirements of Form 10-Q and Article 8 of Regulation S-X and the Securities and Exchange Commission (“SEC”) and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Results for the interim period are not necessarily indicative of results that may be expected for the entire year or for any other interim period. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended July 31, 2012.

Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has had recurring losses from operations of $477,722 and used cash from operations in the amounts of $156,405 for the three months ended October 31, 2012. At October 31, 2012, the Company had negative working capital of $2,016,544 and a stockholders’ deficiency of $1,962,391. These factors raise substantial doubt as to the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from this uncertainty.

The Company plans to raise additional capital through debt and equity placements and increase revenue through new product development. In the event that the Company cannot generate sufficient cash flow from its operations or raise proceeds from offering debt or equity securities, the Company may be forced to curtail or cease its activities. There can be no assurance that the Company will be successful in achieving its goals.

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed 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

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 three 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, balances in certain bank accounts may exceed the FDIC insured limits. Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. At October 31, 2012, the Company did not have any cash equivalents.

Receivables and Allowance for Doubtful Accounts

Trade Receivables are non-interest bearing, uncollateralized customer obligations and are stated at the amounts billed to customers. 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. As of October 31, 2012 and July 31, 2012, the Company has determined that no Allowance for Doubtful Accounts was required.

The Company has a concentration risk in trade accounts receivable with significant sales to the government and local agencies. Five customers accounted for approximately 90% of accounts receivable as of October 31, 2012. Two customers accounted for approximately 96% of accounts receivable as of July 31, 2012. The credit evaluation process has mitigated the credit risk, such losses have been minimal, and within management expectations.

Inventories

Inventories are valued at lower of cost or market using the first-in, first-out (“FIFO”) method. Finished goods costs included raw materials, labor and manufacturing overhead costs. Excess and obsolete inventory costs are expensed and a reserve for slow-moving inventory is made on management’s estimates.

Finished goods are products that have been completed in connection with specific orders and are awaiting shipment. Work-in-Process represents raw material components that have been requisitioned from the warehouse and are being assembled in the manufacturing area. Raw Materials consist of components parts purchased from various suppliers and are used to build our finished products. Various raw material parts are also maintained to support warranty claims for commercial and military products. Typical raw material products include PC boards, digital screen assemblies, guide rails, capacitors, terminals, power supplies, process chips, resistors, keypads, relays and face plates.

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.

The Company maintains a significant amount of raw material component parts and some of this raw material inventory is not expected to be realized within a twelve month operating cycle from the balance sheet date. For any raw material part which has not been purchased within the last twelve months from the balance sheet date, it is evaluated as part of the slow moving inventory and is part of our inventory reserve review. The Company estimated a usage rate for its raw material component parts for what it expects to use over a 36 month period. Any excess inventory based on this projected usage rate is written off as excess and obsolete. The Company then reserves 100% of the estimated usage that is over 12 months and less than 36 months. Certain raw material parts which have been written down to a zero value, may still be maintained in inventory to satisfy possible requirements under the warranty programs but are valued at zero. The Company evaluates the inventory parts based on their age and usage over a 36 month period to determine inventory obsolescence and reserve adjustments.

Inventory consisted of the following as of October 31, 2012 and July 31, 2012:

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


	October 31, 2012		July 31, 2012

Finished Goods	$	70,439	$	75,155
Work-in-process		230,762		246,211
Raw materials		197,638		210,869

		498,839		532,235
Less: Inventory reserve		35,000		35,000

Inventory, net	$	463,839	$	497,235

The Company reviews finished goods and raw material inventory on hand and provides a reserve for obsolete product based on the results of the review.

For the three month period ended October 31, 2012, no inventory was written off as obsolete.

Property and Equipment

Property 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 which range between three (3) and thirty-nine (39) years. Depreciation was $16,645 and $4,166 for the three months period ended October 31, 2012 and 2011, respectively. Repairs and maintenance expenditures which do not extend the useful lives of the related assets are expensed as incurred. Gains and losses on depreciable assets retired or sold are recognized in the consolidated statement of operations in the year of disposal.

Fair Value Measurements

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:


Level 1 –	Quoted prices in active markets for identical assets or liabilities.

Level 2 –	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.

Level 3 –	Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.

The Company’s financial instruments include cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses, and notes payable - officer. All of these items were determined to be Level 1 fair value measurements.

The carrying amounts of cash and equivalents, accounts receivable, other current assets, accounts payable, accrued expenses and notes payable – officer approximates fair value because of the short maturity of these instruments.

Advertising / Public Relations Costs

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Advertising/Public Relations costs are charged to operations when incurred. There were no such expenditures for the three months ended October 31, 2012 and 2011.

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable. An impairment loss, measured as the amount by which the carrying value exceeds the fair value, is recognized if the carrying amount exceeds estimated undiscounted future cash flows.

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.

Research and Development

Research and Development costs are expensed as incurred. Research and Development costs were $22,810 and $14,295 for the three months period ended October 31, 2012 and 2011, respectively.

Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and amounted to $2,238 and $2,532 for the three months period ended October 31, 2012 and 2011, respectively.

Income Taxes

The Company follows the authoritative guidance for accounting for income taxes. Deferred income taxes are determined using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the expected recognition of a deferred tax asset is considered to be unlikely. The guidance also requires that the Company determine whether it is more likely than not that a tax position will not be sustained upon examination by the appropriate taxing authority. If a tax position does not meet the more likely than not recognition criterion, the guidance requires that the tax position be measured at the largest amount of benefit greater than 50 percent not likely of being sustained upon ultimate settlement. Based on the Company’s evaluation, management has concluded that there are significant uncertain tax positions requiring recognition in the consolidated financial statements with respect to the sale of the Company’s New Jersey Net Operating Loss Carryovers. In the event the Company receives an assessment for interest and/or penalties by major tax jurisdiction it would be classified in the financial statements as general and administrative expense.

Other State Tax Benefits

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. Recognition of this asset and income would be in accordance with the guidance of SAB Topic 13 and are would be recorded upon the State of New Jersey’s approval of the technology tax benefit transfer certificate and receipt of a contract to purchase a fixed amount of these NOLs. During the three month period ended October 31, 2012, the Company did not enter into any agreements to sell its unused NOLs.

Warranty

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company provides a 12 year warranty on its commercial products and 25 years on its military products; the warranty covers parts and labor. The Company, at its option, repairs or replaces products that are found defective during the warranty period provided that 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. Our warranty costs have historically been insignificant and therefore a provision was not warranted. Management continues to monitor the costs and will provide a warranty provision if circumstances change.

Stock Based Compensation

The Company follows the authoritative guidance for accounting for stock-based compensation. This guidance requires that new, modified and unvested share-based payment transactions with employees, such as grants of stock options and stock, be recognized in the financial statements based upon their fair value at the grant date and recognized as compensation expense over their vesting periods. The Company also follows the guidance for equity instruments issued to consultants. During the three month period ended October 31, 2012, the company did not grant any shares of Common Stock employees, officers, or directors.

Loss Per Share of Common Stock

Basic loss per share of common stock is computed by dividing the Company’s net loss by the weighted average number of shares of Common Stock outstanding during the period. The preferred dividends are not reflected in arriving at the net loss as they are not material and would have no effect on loss per share available to common shareholders. Diluted loss per shares is based on the treasury stock method and includes the effect from potential issuance of common stock such as shares issuable pursuant to the exercise of warrants and conversions of debentures. Potentially dilutive securities at October 31, 2012, consist of 2,558,087 common shares from outstanding warrants and 155,006 common shares from preferred stock. Potentially dilutive securities at October 31, 2011, consisted of 982,837 common shares from outstanding warrants and 155,006 common shares from preferred stock.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions made by management are based upon available current information, historical experience and other factors that are believed to be reasonable under the circumstances. The estimates and assumptions made by management involve risks and uncertainties which could cause reported amounts to differ materially from actual future results. If management’s estimates and assumptions are inaccurate, the Company’s reported amounts and disclosures of contingent assets and liabilities could be materially and adversely affected. Management considers its reserve for inventory and accounting for derivative liabilities to be significant estimates.

Future Impact of Recently Issued Accounting Standards

In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”). ASU 2012-02 gives entities an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset impaired. If based on its qualitative assessment an entity concludes that it is more likely than not that the fair value of an indefinite lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if an entity concludes otherwise, quantitative impairment testing is not required. ASU is effective for annual and interim impairment tests performed for fiscal years beginning

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

after September 15, 2012, with early adoption permitted. ASU 2012-02 is not expected to have a material impact on the Company’s financial position or results of operations.

In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). ASU 2011-11 enhances current disclosures about financial instruments and derivative instruments that are either offset on the statement of financial position or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the statement of financial position. Entities are required to provide both net and gross information for these assets and liabilities in order to facilitate comparability between financial statements prepared on the basis of U.S. GAAP and financial statements prepared on the basis of IFRS. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. ASU 2011-11 is not expected to have a material impact on the Company’s financial position or results of operations.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08 (“ASU 2011-08”), which updates the guidance in ASC Topic 350, Intangibles – Goodwill & Other. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than fifty percent. If, after assessing the totality of events or circumstances, an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendments in ASU 2011-08 include examples of events and circumstances that an entity should consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. However, the examples are not intended to be all-inclusive and an entity may identify other relevant events and circumstances to consider in making the determination. The examples in this ASU 2011-08 supersede the previous examples under ASC Topic 350 of events and circumstances an entity should consider in determining whether it should test for impairment between annual tests, and also supersede the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to perform the second step of the impairment test. Under the amendments in ASU 2011-08, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit’s fair value from a prior year as previously permitted under ASC Topic 350. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact on the Company’s financial position or results of operations.

Management does not believe that any other recently issued, but not currently effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.

NOTE 3 - INCOME TAXES

The tax provision for the three months ended October 31, 2012 was a tax expense of $1,332, and for the three months ended October 31, 2011 was a tax benefit of $2,639. The Company has no open tax years for the State of New Jersey or for federal income tax purposes, which are subject to examination.

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 – STOCKHOLDERS’ DEFICIENCY

The Series A Preferred Stock provides 4% cumulative dividends, which were $133,958 ($0.86 per share) and $133,183 ($0.86 per share) in arrears at October 31, 2012 and July 31, 2012, respectively. 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 $5,760,000 (due to reverse stock splits) per share. The Company may redeem the Series A Preferred Stock at $.50 per share plus accrued and unpaid dividends. The liquidation preference of the Series A Preferred Stock was $211,458 and $210,683 at October 31, 2012 and July 31, 2012, respectively.

The Series B Preferred Stock provides cumulative dividends of $0.90 per share, which were $44,520 ($37.19 per share) and $44,250 ($36.97 per share) in arrears at October 31, 2012 and July 31, 2012, respectively. In addition, each share of Series B Preferred Stock is convertible into .005 of one share of Common Stock. The liquidation preference of the Series B Preferred Stock is the dividend in arrears plus $15 per share. The liquidation preference was $62,475 and $62,205 at October 31, 2012 and July 31, 2012, respectively.

Between August 1 and October 31, 2012, the Company issued units, consisting of 28,000 shares of its common stock and 56,000 warrants, valued at $7,000, as part of its secondary private placement offering.

The first private placement offering contained an “Anti-Dilution” provision that calls for the issuance of additional shares to its investors, if the company issues or sells additional common shares on or before December 31, 2012. The number of shares to be issued will be such that each investor’s percentage of ownership remains the same as it was before the additional common shares were issued or sold.

As a result of the shares issued during this period, and pursuant to the Anti-dilution provisions mentioned above, the Company is obligated to issue an additional 9,312 shares of its common stock to investors in the Company’s first private placement.

During the three month period ended October 31, 2012, the Company issued 56,000 warrants and no warrants were canceled or exercised. During the three month period ended October 31, 2011, no stock warrants were issued, canceled or exercised

A summary of the Company’s warrants is as follows:

The following table summarizes the warrants activities:


	Number of shares		Weighted Average Exercise price		Weighted Average Remaining contractual term in years		Aggregated Intrinsic Value

Outstanding at July 31, 2012		2,502,087	$	0.63		2.44	$	112,280


Granted		56,000	$	0.01		2.17	$	3,920
Exercised		—		—		—		—
Cancelled / Expired		—		—		—		—


Outstanding at October 31, 2012		2,558,087	$	0.62		2.19	$	116,200.00

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 – STOCK-BASED COMPENSATION

Stock Incentive Plans

The Company has Stock Incentive Plans pursuant to which the Company may grant a number of shares of the Company’s Common Stock to the Company’s officers, directors, employees and consultants. The Company’s 2008 and 2009 Stock Incentive Plan was approved by its shareholders, authorizing the Board to, from time-to-time, issue up to 800,000 shares of the Company’s Common Stock to the Company’s officers, directors, employees and consultants under each plan.

The specific number of shares of the Company’s Common Stock granted to any officer, director, employee or consultant will be determined by the Board.

Pursuant to the Corporation’s 2009 Stock Incentive Plan, no common shares of Company stock were issued to current officers, directors, employees and consultants for the three months ended October 31, 2012 or for the year ended July 31, 2012.

NOTE 6 - MAJOR CUSTOMERS

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


Three Months Ended	Revenue		Customers		Customers		Total

October 31, 2012	$	250,535	$	180,994		4		72.0	%
October 31, 2011	$	58,437	$	43,326		5		73.1	%

NOTE 7 – COMMITMENTS

Employment Contracts

The Company’s Chief Executive Officer 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 the Chief Executive Officer. His annual base salary as of April 30, 2012, was $470,000 and increases by $20,000 annually on January 1^st of each year. In addition, the Chief Executive Officer 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 Chief Executive Officer 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. During the three months ended October 31, 2012, and 2011, the Company’s CEO did not receive any payment of his salary. The Company has accrued and expensed $129,167 and $105,000 for the unpaid portion of his salary for the three months ended October 31, 2012 and 2011, respectively.

Please refer to “NOTE 11 – SUBSEQUENT EVENTS” for further information regarding the Company’s Chief Executive Officer.

The Company’s President and Chief Operating Officer is serving under an employment agreement commencing May 3, 2012 and ending May 3, 2016, which pursuant to its terms, renews for one-year terms until cancelled by either the Company or employee. His annual base salary as of July 31, 2012 was $199,000 and he receives annual increases of $3,000 on May 3rd of each year. The Company’s President and Chief Operating Officer is entitled to an annual bonus equal to 6% of the Company’s annual “income before income tax provision” as stated in its annual

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Form 10-K. The employment agreement also entitles him 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. During the three months ended October 31, 2012, and 2011, the Company’s President and Chief Operating Officer was paid $6,494 and $39,933 of his salary, respectively. The Company has accrued $43,256 and $39,933 for the unpaid portion of his salary for the three months ended October 31, 2012 and 2011, respectively.

Installment Agreement:

The Company has an outstanding balance with its former auditors Withum, Smith & Brown and has agreed to pay the balance of $122,500 as follows:


	•	Monthly installment payments of $1,000 commencing March 25, 2011.
	•	8% of all additional net financing received by the Company over the next 22 months beginning February 25, 2011 and ending December 31. 2012.
	•	If there is still a remaining balance after December 31, 2012, the balance will be paid in Conolog common stock at the fair market value of the stock on December 31, 2012. The Company has made no payments on the remaining balance of $91,704 as of February 15, 2013.

As of October 31, 2012, the remaining balance on this indebtedness was $91,704, which is included as part of accrued expenses on the Balance Sheet.

NOTE 8 – LOANS FROM OFFICERS

On October 4, 2012, Conolog Corporation issued a promissory note in favor of Robert Benou in the principal amount of $100,000. The note is non-interest bearing and is payable on demand. The Note is subject to various default provisions, and the occurrence of such an Event of Default will cause the outstanding principal amount under the Note, together with any and all other amounts payable under the Note, to become immediately due and payable to Mr. Benou. On October 12, 2012 the Company repaid $4,000 against previously issued Notes Payable.

As of October 31, 2012, the net amount owed to Mr. Benou, on various Notes was $286,000.

NOTE 9 – SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION


	Three months Ended October 31, 2012		Three months Ended October 31, 2011

CASH PAID DURING THE PERIOD FOR:
Interest expense	$	—	$	25

Income Taxes	$	1,332	$	—

SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
None	$	—	$	—

NOTE 10– PROFIT SHARING PLAN

The Company sponsors a contributing thrift and savings plan which qualifies under Section 401(k) of the Internal Revenue Code that covers eligible employees meeting age and service requirements. Eligible participating employees may elect to contribute up to the maximum allowed under the IRS code to an investment trust. For the tax years 2011 and 2010, this maximum allowable deferred contribution was $16,500 ($22,500 for employees over

CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

age 50). Employer contributions to the plan are discretionary and determined annually by management. The Company did not make any matching contributions to the plan for either the three months ended October 31, 2012 or the fiscal year ended July 31, 2012.

NOTE 11 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date the financial statements were issued and up to the time of filing of the financial statements with the Securities and Exchange Commission.

On November 13, 2012, Mr. Marc R. Benou (“Mr. Benou”) resigned from his position as the Secretary of the Company. Mr. Benou shall remain with the Company in the capacity of President, Chief Operating Officer and Director. Mr. Benou’s resignation is not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

On November 13, 2012, the Board approved the appointment of Mr. Michael Horn as the Company’s Vice President and Secretary. Mr. Horn has been a director of the Company since August 2011.

On November 21, 2012, Conolog Corporation issued a promissory note in favor of Robert Benou in the aggregate principal amount of $98,000, consisting of amounts advanced by Mr. Benou to the Company on that date. The note is not interest bearing and is payable on demand.

On November 29, 2012, the Company issued units consisting of 40,000 shares of its common stock and 80,000 warrants valued at $10,000 as part of its secondary private placement offering. Pursuant to Anti-Dilution provisions, the Company is obligated to issue an additional 13,302 shares of its common stock to investors in the Company’s first private placement.

On December 11, 2012 the Company entered into agreements to sell up to $2,208,444 of its unused tax losses and received net proceeds of $88,293 related to the sale.

Between November 1, 2012 and February 11, 2013, the Company paid an aggregate amount of $99,000 to Robert Benou as repayment towards his outstanding notes.

On January 31, 2013, Mr. Robert Benou resigned from his position as the Chief Executive Officer of Conolog Corporation. Mr. Benou will continue to the serve the Company in his capacity as Chairman of the Board of Directors of the Company. Mr. Benou’s resignation is not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

On January 31, 2013, Mr. Michael Horn was appointed as the Company’s new Chief Executive Officer at a special meeting of the Board. Mr. Horn resigned his position as Vice President but will continue to serve the Company in his capacities as Secretary and member of the Board.

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

Forward Looking Statements

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC (collectively the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2012, filed with the SEC on January 7, 2013, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

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

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

Overview

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, (vii) fiber optic switching and monitoring devices which permit physical layer control and in line, live, level monitoring of most types of fiber optics, and (viii) digital communication systems that are utilized in the protection of transmission lines and the tripping or blocking of protection circuits in the case of faults.

Description of Revenues

We derive operating revenues from the sales of products 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.

Description of Expenses

Our expenses include the following: (i) Costs of revenues, which consists primarily of costs to manufacture the products we ship, these costs include raw materials, direct labor, overhead expenses associated with manufacturing and freight shipping costs; (ii) General and administrative (“G&A”) expenses, which consists of compensation and benefits for all non-manufacturing employees, compensation costs also includes stock-based awards to employees and directors. Also included in G&A expenses is professional services for legal, accounting and business consultants, as well as, rent, depreciation and general corporate expenditures.; and (iii) Selling costs, consisting mainly of commissions and trade shows expenditures; (iv) Research and Development expenses represent the costs of our development efforts related to new products; (v) Other income (expense) consist of interest income on cash and cash equivalents, interest expense consist of interest expense on convertible debentures. Other expenses consist of change in fair value of derivatives associated with the convertible debentures, along with amortization of debt discount and deferred financing fees also associated with the convertible debentures.

Results of Operations

Three months ended October 31, 2012 compared to the three months ended October 31, 2011

Operating Revenues:

Sales for the quarter ended October 31, 2012 were higher compared to the prior year three month period, the sales revenue increased $190,556 or 326% to $248,993, compared to total revenues of $58,437. The increase is a result of receiving significant orders for PDR-2000’s from three customers. Military sales increased $22,901.


Sales changes by product line for the quarters ended October 31, 2012 and 2011.
Products sold	2012			% to total		2011			% to total			$ change			% chg


Fidra	$	2,380			1%	$	0			0	%	$	2,380			100	%
PDR-2000 Digital Teleprotection		174,877			70%		19,274			33	%		155,603			807	%
PTR-1500 Analog Teleprotection		16,428			6%		4,411			8	%		12,017			272	%
Telemetry Equipment		16,494			7%		28,878			50	%		(12,384	)		-43	%
Military Sales		24,068			10%		1,166			2	%		22,902			1964	%
Repairs & Spare Parts		14,953			6%		4,813			7	%		10,140			211	%
Discounts		(207	)		0%		(105	)		0	%		(102	)		93	%

Net Sales Revenues	$	248,993			100%	$	58,437			100	%	$	190,556			326	%

Cost of Revenue:

Total product cost of goods sold for the quarter ended October 31, 2012, amounted to $141,900 compared to $28,420 for the quarter ended October 31, 2011, an increase of $113,480 or 399%. The increase in cost of goods sold is a result of a comparable increase in sales.

Gross Profit:

The gross profit of 43.0% for the quarter ended October 31, 2012, a decrease of 8.4% from 51.4% for the quarter ended October 31, 2011. The decrease is attributed to price increases for some of the components needed for the PDR-2000.

Operating Expenses:

General and Administrative: For the quarter ended October 31, 2012, general and administrative expenses decreased $86,685 to $528,358 from $615,043. This decrease of 14% can mostly be attributed to (a) marketing expense decreasing by $84,321 from the prior period resulting from the completion of work for the Fidra and GlowWorm products, (b) professional fees decreasing $20,449 due to reduced legal fees, and (c) employee benefits decreasing $8,261 due to lower health care expenditures. These decreases were offset by an increase in payroll expense of $17,868.

Research and Development: For the quarter ended October 31, 2012, research and development cost was $22,810, an increase of $8,515 as compared to the prior year total of $14,295. Our research and development costs can be attributed to enhancing the FIDRA and GlowWorm products.

Selling Expenses: For the quarter ended October 31, 2012, selling expenses were $33,647, an increase of $17,935 versus the prior year total of $15,712 mainly due to an increase in sales commissions resulting from higher sales.

Total Other Income and Expenses:

For the quarter ended October 31, 2012, other income/expense was expense of $3,000, a decrease of $2,978 as compared to an expense of $5,978 for the quarter ended October 31, 2011. The difference is related to a decrease in accrued interest expense.

Income Tax Benefit:

Net Loss:

The Company recorded a net loss of $482,054 for the quarter ended October 31, 2012, as compared to a net loss of $618,372 for the quarter ended October 31, 2011. The decrease in net loss of $136,318 can mainly be attributed to decreased operating expenses during the current period. For the quarter ended October 31, 2012, gross profit increased $77,076, general and administrative costs decreased $86,685. This was offset by an increase in selling expense of $17,935 and an increase in research and development costs of $8,515. As a result of the foregoing, the Company reported a net loss applicable to common shares of ($0.02) basic and diluted loss per share compared to ($0.04) basic and diluted loss per share for the quarter ended October 31, 2011.

LIQUIDITY AND CAPITAL RESOURCES

We have had recurring losses from operations of $477,722 for the three month period ended October 31, 2012 and used cash from operations in the amount of $156,405 for the three month period ended October 31, 2012. At October 31, 2012, the Company had cash and cash equivalents of $16,954.

At October 31, 2012, the Company had total current assets of $593,960 and total current liabilities of $2,610,504, resulting in a working capital deficit of $2,016,544 compared to a working capital deficit of $1,558,135 at the fiscal year ended July 31, 2012. The Company’s current assets consists of $16,954 in cash and cash equivalents, $83,133 in accounts receivable, $463,839 in inventory, $21,677 in prepaid expenses, and $8,357 in other current assets. Accounts receivable decreased from $132,747 at July 31, 2012 to $83,133 at October 31, 2012, resulting from the timing of collections and lower sales during the three month period ended October 31, 2012 as compared to the quarter ended July 31, 2012.

Cash expenditures have exceeded revenues for the prior quarters and Management expects this consumption of cash to continue. Our operations have been, and will continue to be, funded from existing cash balances and private placements of equity funding. During the three month period ended October 31, 2012, we raised an additional $100,000 from the issuance of Notes Payable to Mr. Robert Benou and repayments totaling $4,000 were made during the same three month period. We are dependent on improved operating results and raising additional funds over the next twelve month period. There are no assurances that we will be able to raise additional funding. In the event that we are unable to generate sufficient cash flow or receive proceeds from offerings of debt or equity securities, the Company may be forced to curtail or cease it activities and/or operations.

OPERATING ACTIVITIES

Net cash used in operating activities was $156,405 for the three month period ended October 31, 2012, as compared to $183,081 net cash used in operating activities for the three month period ended October 31, 2011, a decrease of approximately $27,000. This decrease in the use of cash of can be attributed to: (a) net losses from operational activities using approximately $136,000 less than the prior period and (b) a decrease in inventories of approximately $107,200.

INVESTING ACTIVITIES

No cash was used for investing activities for the three month periods ended October 31, 2012 and October 31, 2011.

FINANCING ACTIVITIES

Net cash provided from financing activities was $103,000 for the three month period ended October 31, 2012, as compared to $425,057 provided in the same three month period in 2011. During the three month period ended October 31, 2012, the Company received proceeds of $7,000 from the sale of its common stock through a private placement and a $100,000 from a Note issued to Mr. Robert Benou. A repayment of $4,000 was made against the notes payable held by Robert Benou during the three months ended October 31, 2012.

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.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions made by management as based upon available current information, historical experience and other factors that are believed to be reasonable under the circumstances. The estimates and assumptions made by management involve risks and uncertainties which could cause reported amounts to differ materially from actual future results. If management’s estimates and assumptions are inaccurate, the Company’s reported amounts and disclosures of contingent assets and liabilities could be materially and adversely affected. Management considers its reserve for inventory and accounting for derivative liabilities to be significant estimates.

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 is 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 collectability 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

estimated usage that is over 12 months and less than 36 months. Certain raw material parts which have been written down to a zero value, may still be maintained in inventory to satisfy possible requirements under the warranty programs but are valued at zero. The Company evaluates the inventory parts based on their age and usage over a 36 month period to determine inventory and obsolescence and reserve adjustments.

WARRANTY

The Company provides a twelve-year warranty on its commercial products and 25 years on its military 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. Our warranty costs have historically been insignificant and therefore a provision was not warranted. Management continues to monitor the costs and will provide a warranty provision if circumstances change.

INCOME TAXES

STOCK BASED COMPENSATION

The Company follows the authoritative guidance for accounting for stock-based compensation. This guidance requires that new, modified and unvested share-based payment transactions with employees, such as grants of stock options and restricted stock, be recognized in the financial statements based upon their fair value at the grant date and recognized as compensation expense over their vesting periods. The Company also follows the guidance for equity instruments issued to consultants.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses and short term convertible Debentures approximates fair value because of the short maturity of these instruments. The recorded value of long-term debt approximates its fair value as the terms and rates approximate market rates.

FAIR VALUE MEASUREMENTS

transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:


Level 1 –	Quoted prices in active markets for identical assets or liabilities.

Level 2 –	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable market data or substantially the full term of the assets or liabilities.

Level 3 –	Unobservable inputs that are supported by little or no market activity and that are significant to the value of the assets or liabilities.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a material impact on the Company’s financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Our Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

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

There were no unregistered sales of the Company’s equity securities during the quarter ended October 31, 2012, that were not otherwise disclosed on a Form 8-K.

Item 3. Defaults upon Senior Securities.

There were no defaults upon senior securities during the quarter ended October 31, 2012.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.


Exhibit No.		Description

4.1		Promissory Note in the amount of $100,000, issued by Conolog Corporation in favor of Robert Benou *



31.1		Certification by the Chief Executive Officer and Chief Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).*

32.1		Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS		XBRL Instance Document **

101.SCH		XBRL Taxonomy Extension Schema **

101.CAL		XBRL Taxonomy Extension Calculation Linkbase **


101.DEF		XBRL Taxonomy Extension Definition Linkbase **

101.LAB		XBRL Taxonomy Extension Label Linkbase **

101.PRE		XBRL Taxonomy Extension Presentation Linkbase **

*		Filed herewith
**		To be furnished by amendment

SIGNATURES

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


		CONOLOG CORPORATION

Date: February 15, 2013	By:		/s/ Michael Horn

			Name: Michael Horn
			Title: Chief Executive Officer
			(Principal Executive Officer)

CONOLOG CORP - FORM 10-Q - February 15, 2013

Attached files

CONOLOG CORP Reports