|                                    
|------------------------------------
|SECURITIES
  AND EXCHANGE COMMISSION
|Washington, D.C. 20549              
|                                    
|FORM 10-QSB                         

|                                                |                                                                                              
|----------------------------------------------- | ---------------------------------------------------------------------------------------------
|(x)                                             | QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
  1934 
|                                                |                                                                                              
|FOR THE QUARTERLY PERIOD ENDED April 30,
  2006
|                                                |                                                                                              
|( )                                             | 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 organization) |  | (I.
  R. S. Employer Identification No.)

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

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

Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such report(s), and (2) has been subject to such filing requirement for
the past 90 days. YES (x) NO ( )

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
  PROCEEDINGS DURING THE PRECEDING FIVE YEARS.

| |                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Indicate
  by check mark whether the registrant has filed all documents and reports
  required to be filed by Sections 12, 13, or 15 (d) of the Securities Exchange
  Act of 1934 subsequently to the distribution of securities under a plan
  confirmed by a court.  YES (X) NO ( )

APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

| |                               |  |                                                                     | 
| | ----------------------------- |  | ------------------------------------------------------------------- | 
| | Class                         |  | Shares Outstanding at June 1, 2006 
  (Inclusive of Treasury Stock) | 
| |                               |  |                                                                     | 
| |                               |  |                                                                     | 
| | Common Stock, $.001 par value |  | 7,512,847                                                           | 



---



INDEX

|        |                                                                                                                                                         
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|PART I  | FINANCIAL INFORMATION                                                                                                                                   
|        |                                                                                                                                                         
|Item 1. | CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                       
|        |                                                                                                                                                         
|        | Condensed Consolidated Balance Sheets as of April 30, 2006
  (Unaudited) and July 31, 2005 (Audited)                                                    
|        |                                                                                                                                                         
|        | Condensed Consolidated Statements of Operations for the Nine months
  and Three months ended April 30, 2006 (Unaudited) and April 30, 2005
  (Unaudited)
|        |                                                                                                                                                         
|        | Condensed Consolidated Statements of Cash Flows for the Nine months
  ended April 30, 2006 (Unaudited) and April 30, 2005 (Unaudited)                   
|        |                                                                                                                                                         
|        | Notes to
  Condensed Consolidated Financial Statements                                                                                                  
|        |                                                                                                                                                         
|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS                                                                 
|        |                                                                                                                                                         
|Item 3. | CONTROLS AND PROCEDURES                                                                                                                                 
|        |                                                                                                                                                         
|PART II | OTHER INFORMATION                                                                                                                                       
|        |                                                                                                                                                         
|Item 1. | LEGAL PROCEEDINGS                                                                                                                                       
|        |                                                                                                                                                         
|Item 2. | CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASE OF
  SECURITIES                                                                              
|        |                                                                                                                                                         
|Item 3. | DEFAULTS UPON SENIOR SECURITIES                                                                                                                         
|        |                                                                                                                                                         
|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                     
|        |                                                                                                                                                         
|Item 5. | OTHER INFORMATION                                                                                                                                       
|        |                                                                                                                                                         
|Item 6. | EXHIBITS                                                                                                                                                
|        |                                                                                                                                                         
|        | SIGNATURES AND CERTIFICATIONS                                                                                                                           

2

---



Conolog Corporation and SubsidiariesCondensed Consolidated Balance Sheets

ASSETS

|                                                                      |  |                  |           |                 |   |           | 
|--------------------------------------------------------------------- |  | ---------------- | --------- | --------------- | - | --------- | 
|                                                                      |  | April 30,
  2006 |           | July 31,
  2005 |  
|                                                                      |  | (UnAudited)      |           | (Audited)       |  
|                                                                      |  |                  |           |                 |  
|Current Assets                                                        |  |                  |           |                 |   |           | 
|Cash and cash equivalents                                             |  | $                | 3,748,161 |                 | $ | 4,471,072 | 
|Accounts Receivable - net allowance for
  doubtful accounts of $1,000 |  |                  | 11,273    |                 |   | 89,194    | 
|Prepaid Expense                                                       |  |                  | 47,701    |                 |   | 23,755    | 
|Current portion of note receivable                                    |  |                  | 14,864    |                 |   | 14,864    | 
|Inventory                                                             |  |                  | 900,000   |                 |   | 900,000   | 
|Other receivables                                                     |  |                  | 146,364   |                 |   | 252,599   | 
|                                                                      |  |                  |           |                 |   |           | 
|                                                                      |  |                  |           |                 |   |           | 
|Total Current Assets                                                  |  |                  | 4,868,363 |                 |   | 5,751,484 | 
|                                                                      |  |                  |           |                 |   |           | 
|                                                                      |  |                  |           |                 |   |           | 
|Property, Plant and Equipment                                         |  |                  |           |                 |   |           | 
|Machinery and equipment                                               |  |                  | 1,365,911 |                 |   | 1,358,601 | 
|Furniture and fixtures                                                |  |                  | 423,342   |                 |   | 423,342   | 
|Computer software                                                     |  |                  | 147,203   |                 |   | 147,203   | 
|Leasehold improvements                                                |  |                  | 30,265    |                 |   | 30,265    | 
|                                                                      |  |                  |           |                 |   |           | 
|Total Property, Plant and Equipment                                   |  |                  | 1,966,721 |                 |   | 1,959,411 | 
|Less accumulated depreciation and
  amortization                      |  |                  | 1,898,209 |                 |   | 1,868,405 | 
|                                                                      |  |                  |           |                 |   |           | 
|Net Property, Plant & Equipment                                       |  |                  | 68,512    |                 |   | 91,006    | 
|                                                                      |  |                  |           |                 |   |           | 
|Other Assets                                                          |  |                  |           |                 |   |           | 
|Inventory, net of current portion                                     |  |                  | 1,121,836 |                 |   | 970,212   | 
|Deferred loan closing cost                                            |  |                  | 164,264   |                 |   |          | 
|Note receivable, net of current portion                               |  |                  | 116,435   |                 |   | 125,106   | 
|                                                                      |  |                  |           |                 |   |           | 
|Total Other Assets                                                    |  |                  | 1,402,535 |                 |   | 1,095,318 | 
|                                                                      |  |                  |           |                 |   |           | 
|                                                                      |  |                  |           |                 |   |           | 
|                                                                      |  |                  |           |                 |   |           | 
|Total Assets                                                          |  | $                | 6,339,410 |                 | $ | 6,937,808 | 
|                                                                      |  |                  |           |                 |   |           | 

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

3

---



Conolog Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

LIABILITIES AND STOCKHOLDERS EQUITY

|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | --------------- | - | ----------- | -
|                                                                                                                                                                                                                  |  | April 30,
  2006 |             | July 31,
  2005 |  
|                                                                                                                                                                                                                  |  | (Unaudited)      |             | (Audited)       |  
|                                                                                                                                                                                                                  |  |                  |             |                 |  
|Current
  Liabilities                                                                                                                                                                                             |  |                  |             |                 |   |             |  
|Accounts payable                                                                                                                                                                                                  |  | $                | 81,798      |                 | $ | 46,650      |  
|Accrued expenses                                                                                                                                                                                                  |  |                  | 9,918       |                 |   | 248,643     |  
|Accrued legal fees                                                                                                                                                                                                |  |                  |            |                 |   | 175,000     |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Total Current Liabilities                                                                                                                                                                                         |  |                  | 91,716      |                 |   | 470,293     |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Non-Current
  Liabilities                                                                                                                                                                                         |  |                  |             |                 |   |             |  
|Convertible Denbenture - net of discount of
  $419,550.                                                                                                                                                           |  |                  | 830,450     |                 |   |            |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Total Liabilities                                                                                                                                                                                                 |  |                  | 922,166     |                 |   | 470,293     |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Stockholders
  Equity                                                                                                                                                                                            |  |                  |             |                 |   |             |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Preferred stock, par value $.50; series A;
  4% cumulative; 162,000 shares authorized; 155,000 shares issued and
  outstanding                                                                                    |  |                  | 77,500      |                 |   | 77,500      |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Preferred stock, par value $.50; Series B;
  $.90 cumulative; 50,000 shares authorized; 1,197 shares issued and
  outstanding                                                                                     |  |                  | 597         |                 |   | 597         |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Common stock, par value $.01; 20,000,000
  shares authorized; 7,417,847 and 7,422,847 shares issued and outstanding
  at  July 31, 2005 and April 30, 2006,
  respectively, including 220 shares held in treasury |  |                  | 74,221      |                 |   | 74,172      |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Contributed capital                                                                                                                                                                                               |  |                  | 35,908,953  |                 |   | 35,425,721  |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Retained (deficit)                                                                                                                                                                                                |  |                  | (30,512,293 | )               |   | (28,391,938 | )
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Treasury shares at cost                                                                                                                                                                                           |  |                  | (131,734    | )               |   | (131,734    | )
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Deferred compensation                                                                                                                                                                                             |  |                  |            |                 |   | (547,750    | )
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Prepaid consulting                                                                                                                                                                                                |  |                  |            |                 |   | (39,053     | )
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Total Stockholders Equity                                                                                                                                                                                        |  |                  | 5,417,244   |                 |   | 6,467,515   |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  
|Total Liabilities and Stockholders
Equity                                                                                                                                                                        |  | $                | 6,339,410   |                 | $ | 6,937,808   |  
|                                                                                                                                                                                                                  |  |                  |             |                 |   |             |  

4

---



Conolog Corporation and SubsidiariesCondensed Consolidated Statements of Operations
(Unaudited)

|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|--------------------------------------------------------------- |  | -------------------------------------- | --------- | ------------------------------------- | - | --------- | - | ---- | ---------- | - | - | --------- | -
|                                                                |  | For the Three Months
  Ended April 30, |           | For the Nine Months
  Ended April 30, |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|                                                                |  | 2006                                   |           | 2005                                  |   | 2006      |   | 2005 |           
|                                                                |  |                                        |           |                                       |   |           |   |      |           
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Product Revenue                                                 |  | $                                      | 72,462    |                                       | $ | 464,728   |   | $    | 326,675    |   | $ | 713,408   |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Cost of product revenue                                         |  |                                        | 80,184    |                                       |   | 105,429   |   |      | 220,973    |   |   | 302,972   |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Gross Profit (Loss)                                             |  |                                        | (7,722    | )                                     |   | 359,299   |   |      | 105,702    |   |   | 410,436   |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Selling, general and administrative                             |  |                                        | 763,479   |                                       |   | 373,946   |   |      | 2,287,303  |   |   | 1,311,243 |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Loss from operations                                            |  |                                        | (771,201  | )                                     |   | (14,647   | ) |      | (2,181,601 | ) |   | (900,807  | )
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Other Income
  (Expenses)                                       |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Interest income                                                 |  |                                        | 38,910    |                                       |   | 14,256    |   |      | 97,196     |   |   | 21,559    |  
|Interest expense                                                |  |                                        | (40,128   | )                                     |   |          |   |      | (40,128    | ) |   |          |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Total other income (expense)                                    |  |                                        | (1,218    | )                                     |   | 14,256    |   |      | 57,068     |   |   | 21,559    |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Loss from continuing operations, before
  Income taxes          |  |                                        | (772,419  | )                                     |   | (391      | ) |      | (2,124,533 | ) |   | (879,248  | )
|Benefit from Income Taxes                                       |  |                                        |          |                                       |   |          |   |      |           |   |   | 246,723   |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Loss from
  continuing operations                               |  |                                        | (772,419  | )                                     | $ | (391      | ) | $    | (2,124,533 | ) | $ | (632,525  | )
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Loss per share from continuing operations                       |  | $                                      | (0.10     | )                                     | $ | (0.00     | ) | $    | (0.29      | ) | $ | (0.10     | )
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  
|Weighted Average Number of Shares of Common
  Stock Outstanding |  |                                        | 7,422,405 |                                       |   | 5,778,828 |   |      | 7,419,338  |   |   | 6,167,712 |  
|                                                                |  |                                        |           |                                       |   |           |   |      |            |   |   |           |  

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

5

---



Conolog Corporation Condensed Consolidated Statements of Cash Flows 
For the Nine Months Ended April 30, 2006 and 2005 
(Unaudited)

|                                                                                |  |      |            |      |   |            |  
|------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                |  | 2006 |            | 2005 |  
|                                                                                |  |      |            |      |  
|                                                                                |  |      |            |      |   |            |  
|Cash Flows from Operating Activities:                                           |  |      |            |      |   |            |  
|Net Loss                                                                        |  | $    | (2,124,533 | )    | $ | (632,525   | )
|                                                                                |  |      |            |      |   |            |  
|Adjustments to reconcile net loss to net
  cash (used in) operating activities: |  |      |            |      |   |            |  
|Depreciation                                                                    |  |      | 29,805     |      |   | 20,000     |  
|Amortization of deferred compensation                                           |  |      | 547,750    |      |   |           |  
|Amortization of prepaid consulting
expense                                      |  |      | 43,803     |      |   | 160,315    |  
|Debt discount and deferred closing costs                                        |  |      | 63,160     |      |   |           |  
|Changes in assets and liabilities:                                              |  |      |            |      |   |            |  
|Decrease (Increase) in accounts
receivable                                      |  |      | 77,921     |      |   | (234,442   | )
|Decrease (Increase) in other receivables                                        |  |      | 106,235    |      |   | (15,541    | )
|(Increase) decrease in inventories                                              |  |      | (151,624   | )    |   | 24,073     |  
|(Increase) in other current assets                                              |  |      | (23,946    | )    |   | (375,504   | )
|Decrease (Increase) in other assets
-notes                                      |  |      | 8,671      |      |   | (217,500   | )
|(Increase) in deferred loan costs                                               |  |      | (164,264   | )    |   |           |  
|(Decrease) in accounts payable                                                  |  |      | (139,853   | )    |   | (158,774   | )
|(Decrease) in accrued and other
liabilities                                     |  |      | (238,725   | )    |   | (145,668   | )
|                                                                                |  |      |            |      |   |            |  
|Net cash (used in) operating
activities                                         |  |      | (1,965,600 | )    |   | (1,575,566 | )
|                                                                                |  |      |            |      |   |            |  
|Cash Flows from Investing Activities:                                           |  |      |            |      |   |            |  
|Purchase of equipment                                                           |  |      | (7,311     | )    |   | (51,898    | )
|                                                                                |  |      |            |      |   |            |  
|Net cash (used in) investing
activities                                         |  |      | (7,311     | )    |   | (51,898    | )

6

---



Conolog Corporation
Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended April 30, 2006 and 2005
(Unaudited)

-Continued

|                                                       |  |      |           |      |   |           |  
|------------------------------------------------------ |  | ---- | --------- | ---- | - | --------- | -
|                                                       |  | 2006 |           | 2005 |  
|                                                       |  |      |           |      |  
|Cash Flows
  From Financing Activities:                |  |      |           |      |   |           |  
|                                                       |  |      |           |      |   |           |  
|Repayment of loan from Officer                         |  |      |           |      |   | (77,429   | )
|                                                       |  |      |           |      |   |           |  
|Proceeds from note receivable                          |  |      |          |      |   | 6,193     |  
|Payment of previously forgiven debt                    |  |      |          |      |   | (114,371  | )
|Proceeds from issuance of Stock                        |  |      |          |      |   | 3,710,651 |  
|Proceeds from issuance of Stock for
  warrants         |  |      |          |      |   | 796,800   |  
|Proceeds from convertible debenture                    |  |      | 1,250,000 |      |   |          |  
|                                                       |  |      |           |      |   |           |  
|Net cash provided by financing
activities:             |  |      | 1,250,000 |      |   | 4,321,844 |  
|                                                       |  |      |           |      |   |           |  
|                                                       |  |      |           |      |   |           |  
|Net Increase
  (Decrease) In Cash and Cash Equivalents |  |      | (722,910  | )    |   | 2,694,380 |  
|                                                       |  |      |           |      |   |           |  
|Cash and
  Cash Equivalents at Beginning of Period     |  |      | 4,471,072 |      |   | 1,119,768 |  
|                                                       |  |      |           |      |   |           |  
|                                                       |  |      |           |      |   |           |  
|Cash and
  Equivalents at End of Period                |  | $    | 3,748,161 |      | $ | 3,814,148 |  
|                                                       |  |      |           |      |   |           |  
|                                                       |  |      |           |      |   |           |  
|Supplemental
  Disclosure of Cash Flow Information     |  |      |           |      |   |           |  
|Cash paid during the period - Interest
  expense       |  | $    | 12,158    |      | $ |          |  
|Supplemental
  Disclosure of Non-cash activities       |  |      |           |      |   |           |  
|Common stock issued for services to be
  provided      |  | $    | 4,750     |      | $ | 284,850   |  
|Conversation of debentures                             |  | $    |          |      | $ | 1,094,000 |  
|Common stock issued for deferred
  compensation        |  | $    |          |      | $ | 833,000   |  
|Warrants converted to common stock                     |  | $    |          |      | $ | 1,599,401 |  

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

7

---



Note 1  Unaudited Financial Statements

These
condensed consolidated financial statements should be read in conjunction with
the audited financial statements included in the Annual Report on Form 10-KSB
for the year ended July 31, 2005. Since certain information and footnote
disclosures normally included in condensed financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to the instructions to Form 10-QSB of Regulation S-B as promulgated by
the Securities and Exchange Commission, these condensed consolidated financial
statements specifically refer to the footnotes to the consolidated financial statements
of the Company as of July 31, 2005. In the opinion of management, these
unaudited interim consolidated financial statements reflect all adjustments and
disclosures necessary for a fair statement of the financial position and
results of operations and cash flows of the Company for the interim periods
presented. Such adjustments consisted only of those of a normal recurring
nature. Results of operations for the nine months ended April 30, 2006 should
not necessarily be taken as indicative of the results of operations that may be
expected for the fiscal year ending July 31, 2006.

Note 2  Convertible Notes with Warrants

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 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. Interest payable
on these notes accrues at a rate of 5% per annum. The maturity date is January
10, 2010. 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. The amortization of Discount will begin effective February 1, 2006 as
the convertible debentures were issued in the last week of the Companys fiscal
quarter ending January 31, 2006.

ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A
summary of income, costs and expenses for the nine months ended April 30, 2006
and 2005 follows:

|                                                          |  |           |            |   |      |   |           |  
|--------------------------------------------------------- |  | --------- | ---------- | - | ---- | - | --------- | -
|                                                          |  | April 30, |           
|                                                          |  |           |           
|                                                          |  | 2006      |            |   | 2005 |  
|                                                          |  |           |            |   |      |  
|Product Revenues                                          |  | $         | 326,675    |   |      | $ | 713,408   |  
|Costs and expenses                                        |  |           | 2,508,276  |   |      |   | 1,614,215 |  
|                                                          |  |           |            |   |      |   |           |  
|Net Loss
  from Continuing Operations before Income Taxes |  |           | (2,181,601 | ) |      |   | (900,807  | )
|                                                          |  |           |            |   |      |   |           |  
|                                                          |  |           |            |   |      |   |           |  
|Benefit from
  Income Taxes                               |  |           | 0          |   |      |   | 246,723   |  
|Other income
  (expense) - net                            |  |           | 57,068     |   |      |   | 21,559    |  
|                                                          |  |           |            |   |      |   |           |  
|                                                          |  |           |            |   |      |   |           |  
|Net (Loss)
  from continuing operations                   |  | $         | (2,124,533 | ) |      | $ | (632,525  | )
|                                                          |  |           |            |   |      |   |           |  
|Loss
  Attributable to Common Shareholders                |  | $         | (2,124,533 | ) |      | $ | (632,525  | )
|                                                          |  |           |            |   |      |   |           |  

FOR THE THREE AND NINE MONTHS ENDED APRIL 30,
2006

Product
revenues for the three months ended April 30, 2006 totaled $ 72,462
representing a net decrease of 84% or $ 392,266 from $464,728 reported for the
same three-month period last year. The Companys Iniven division was able to
accelerate deliveries during the third quarter of 2005, which accounts for the
decrease in revenues for the quarter ended April 30, 2006. Product revenues for
the nine months ended April 30, 2006 totaled $ 326,675 representing a net
decrease of 54% or $ 386,733 from $ 713,408 reported for the nine-month period
last year.

8

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Product
Cost for the three months ended April 30, 2006 totaled $ 80,184 a decreased of
23.9% or $ 25,245 as compared to the three months ended April 30, 2005. Product
Cost decreased as a result of a combination of factors including outsourcing
and the increased use of automation. Product cost for the nine-month period
totaled $ 220,973 or 67% of product revenue. Product cost for the nine-month
period decreased 27.1% or $ 81,999 as compared to the nine-month period ended
April 30, 2005.

Gross
profit for products for the three months ended April 30, 2006 amounted to a
loss of ($ 7,722) or (10.6%) of product revenue as compared to $ 359,299 or
77.3% of product revenue for the three months ended April 30, 2005. The Company
attributes this decrease in gross profit for products directly to the
accelerated deliveries of products in April 2005. Gross Profit for the
nine-month period amounted to $ 105,702 or 32.3% of product revenue compared to
$ 410,436 or 57.5% of product revenue for the nine months ended April 30, 2005.

Selling,
general and administrative expenses increased by $ 389,533 for the three months
ended April 30, 2006 as compared to the three months ended April 30, 2005. This
increase over the three-month period ended April 30, 2006 is primarily the
result of research and development costs related to the new CM-100 product
being offered in the Fall of 2006. Selling, general and administrative expenses
increased by $ 976,060 for the nine months ended April 30, 2006 as compared to
the nine months ended April 30, 2005. The Company attributes this increase to
the non-cash Stock Compensation expense which the Company incurred as a result
of issuing an aggregate of 350,000 shares of its common stock to its directors,
employees and officers and research and development cost for the Companys new
CM-100 product line.

Interest
income for the nine-month period was $ 97,196, an increase of $ 75,637 over the
nine month period ended April 30, 2005.

As
a result of the foregoing, for the three months ended April 30, 2006, the
Company reported a net loss from continuing operations of ($ 772,419) or
($0.10) per share compared to a Loss of ($ 391) or ($0.00) per share for the
three months ended April 30, 2005. The Company reported a net loss from
continuing operations of ($2,124,533) or ($ 0.29) per share compared to a Loss
of ($ 632,525) or ($ 0.10) per share for the nine months ended April 30, 2006
and 2005, respectively.

LIQUIDITY AND FINANCIAL CONDITION

Inventories
from the Companys product segment increased from $1,870,212 at July 31, 2005
to $2,021,836 for the quarter ended April 30, 2006, an increase of $ 151,624,
which is primarily attributed to the introduction of the Companys CM-100
product line.

Accounts
Receivable decreased to $ 11,273 for the nine months ended April 30, 2006 from
$89,194 as of July 31, 2005. The decrease is attributed to reduced sales.

The
Company expects to meet its cash requirements for the next 12 months through
existing cash balances.

STATEMENT REGARDING PRESENT OPERATIONS

There
were no material changes in the nature of the operations of the Registrant
during the three months ended April 30, 2006. Detailed information is contained
in the Registrants annual report on Form 10-KSB for the fiscal year ended July
31, 2005.

FORWARD
LOOKING STATEMENTS

This
quarterly report contains certain forward-looking statements within the
meaning of Section 27A of The Securities Act of 1933, as amended and section
21E of The Securities Act of 1934, as amended. Such Statements are subject to
certain risks and uncertainties, including, among other things, intense
competition from more well known companies, that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above, among other
factors, could affect the Companys financial performance and could cause the
Companys actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements. The Company does not undertake, and specifically declines any
obligations, to publicly release the results of any revisions, which may be
made to any forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of unanticipated
events.

9

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ITEM 3  CONTROLS AND PROCEDURES

(a)
Evaluation of disclosure controls and procedures

Pursuant
to Rule 13a-15 under the Securities Exchange Act of 1934, the Company carried
out an evaluation, under the supervision and with the participation of the
Companys management, including the Companys principal executive officer and
principal financial officer, of the effectiveness of the design and operation
of the Companys disclosure controls and procedures (as defined under Rule
13a-15 (e) under the Securities Exchange Act of 1934) as of the end of the
period covered by this report.  Based
upon that evaluation, the Companys principal executive officer and principal
financial officer concluded that the Companys disclosure controls and procedures
are effective for gathering, analyzing and disclosing the information we are
required to disclose under the Securities and Exchange Act of 1934.

(b)
Changes in internal controls

There
have been no significant changes in the Companys internal controls or, to its
knowledge, in other factors that could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.

PART II - OTHER INFORMATION

1. Legal Proceedings  None

2. Unregistered Sales of Equity Securities and Use of Proceeds  None

3. Defaults upon Senior Securities - None

4. Submission of Matters to a Vote of Security Holders

The
following matters were submitted to a vote of the stockholders at our 2006
annual meeting of stockholders held on April 19, 2006: (1) a proposal to elect
the five nominees for director named below for terms of one year each; (2) a
proposal to approve a Subscription Agreement between the Company and three
subscribers, dated January 19, 2006, pursuant to which the Company sold
convertible debentures having an aggregate principal balance of $1,250,000,
which are convertible into 1,000,000 shares of the Companys common stock
(Common Stock) at a conversion price of $1.25 per shares and warrants to purchase
1,000,000 shares of the Companys common stock at $.9579 per share;  (3) a proposal to grant an aggregate of
$450,000 shares of the Companys common stock to its officers, directors,
employees and consultants; (4) a proposal to give the Board of Directors the
discretion to reduce the warrant exercise price of warrants to purchase an
aggregate of 1,440,000 shares of the Companys Common Stock, which were issued
in connection with a Subscription Agreement dated July 19, 2005; (5) A proposal
to amend the Companys Certificate of Incorporation to increase the number of
the Companys authorized shares of Common Stock from 20,000,000 to 30,000,000;
and (6) a proposal to ratify the selection of
Bagell Josephs Levine & Company, L.L.C. as the Companys independent
auditors for the fiscal year ending July 31, 2006.  The number of shares of common stock outstanding and eligible to
vote as of the record date of March 3, 2006 was 7,422,847. Set forth below is
the number of votes cast for or withheld with respect to each nominee for
director and the number of votes cast for or against or abstaining, and if
applicable the number of broker non-votes, for the other matters submitted to a
vote of the stockholders at the meeting.

Proposal # 1 To elect
the following nominees as our directors for terms of one year each:

|                   |  |  |           |  |          |           | 
|------------------ |  |  | --------- |  | -------- | --------- | 
|                   |  |  | For       |  | Withheld
|                   |  |  |           |  |          |           | 
|Robert S.
  Benou  |  |  | 5,833,126 |  |          | 700,030   | 
|Marc R.
  Benou    |  |  | 5,896,497 |  |          | 636,659   | 
|Louis S.
  Massad  |  |  | 5,489,829 |  |          | 1,043,327 | 
|Edward J.
  Rielly |  |  | 5,847,712 |  |          | 685,444   | 
|David M.
  Peison  |  |  | 5,847,562 |  |          | 685,444   | 

Proposal
# 2  To approve the execution of the Subscription Agreement, dated January 19,
2006:

|        |  |  |         |  |  |         |  |  |                    | 
|------- |  |  | ------- |  |  | ------- |  |  | ------------------ | 
|For     |  |  | Against |  |  | Abstain |  |  | Broker
  Non-Votes | 
|        |  |  |         |  |  |         |  |  |                    | 
|807,299 |  |  | 718,409 |  |  | 13,709  |  |  | 4,993,739          | 

10

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Proposal
#3  To grant shares to directors, officers and
employees of the Company.

|          |  |  |         |  |  |            |  |  |                    | 
|--------- |  |  | ------- |  |  | ---------- |  |  | ------------------ | 
|For       |  |  | Against |  |  | Abstaining |  |  | Broker
  Non-Votes | 
|          |  |  |         |  |  |            |  |  |                    | 
|1,004,222 |  |  | 524,594 |  |  | 601        |  |  | 4,993,739          | 

Proposal
#4  To approve the directors the discretion to reduce
the warrant exercise price of warrants granted to purchase 1,200,000 shares of
Companys common stock.

|        |  |  |         |  |  |            |  |  |                    | 
|------- |  |  | ------- |  |  | ---------- |  |  | ------------------ | 
|For     |  |  | Against |  |  | Abstaining |  |  | Broker
  Non-Votes | 
|        |  |  |         |  |  |            |  |  |                    | 
|594,076 |  |  | 944,840 |  |  | 501        |  |  | 4,993,739          | 

Proposal
#5  To increase the number of the authorized shares
of Common stock from 20,000,000 shares to 30,000,000 shares.

|          |  |  |           |  |  |            | 
|--------- |  |  | --------- |  |  | ---------- | 
|For       |  |  | Against   |  |  | Abstaining | 
|          |  |  |           |  |  |            | 
|5,406,718 |  |  | 1,125,612 |  |  | 826        | 

Proposal
#6  To ratify the selection of Bagell, Josephs,
Levine & Company, L.L.C. as our independent auditors for the current fiscal
year.

|          |  |  |         |  |  |            | 
|--------- |  |  | ------- |  |  | ---------- | 
|For       |  |  | Against |  |  | Abstaining | 
|          |  |  |         |  |  |            | 
|6,108,896 |  |  | 423,473 |  |  | 787        | 

5. Other Information 

|  |         
|- | --------
|6 | Exhibits

|                 |  |                                                                                                  
|---------------- |  | -------------------------------------------------------------------------------------------------
|Exhibit
  Number |  | Description                                                                                      
|                 |  |                                                                                                  
|3.1              |  | Amendment                                                                                        
|31 (1)           |  | Rule
  13a-14(a) 15d-14(a) Certification of Chief Executive Officer and Chief
  Financial Officer
|31 (2)           |  | Rule
  13a-14(a) 15d-14(a) Certification of Chief Operating Officer, President and
  Secretary   
|32               |  | Section 1350
  Certification                                                                     

SIGNATURES

In
accordance with the requirements of the Exchange Act, the Registrants caused
this report to be signed on its behalf by the undersigned, thereunto and duly
authorized

|                      |                          |                                                   
|--------------------- | ------------------------ | --------------------------------------------------
|                      | CONOLOG
  CORPORATION   
|                      |                          |                                                   
|Date: June
  13, 2006 | By /s/
  Robert S. Benou
|                      |                          | Chairman,
  Chief Executive Officer,              
|                      |                          | Chief
  Financial Officer and Treasurer           
|                      |                          |                                                   
|Date: June
  13, 2006 | By /s/ Marc
  R. Benou  
|                      |                          | Chief
  Operating Officer, President and Secretary

11

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