Form 10-QSB

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-QSB



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



FOR THE QUARTERLY PERIOD ENDED October 31, 2005



£ 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  S  NO  £



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PROCEEDING 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  S  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 December 12 (Inclusive of 
        Treasury Stock)
|------------------------------------- |  | --------------------------------------------------------------------------------
|Common
        Stock, $.001 par value |  | 7,417,854                                                                       











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INDEX





|PART
        I | FINANCIAL INFORMATION
|-------------- | ---------------------



|Item
        1. | CONSOLIDATED FINANCIAL STATEMENTS
|--------------- | ---------------------------------



Condensed Consolidated Balance Sheets as of October 31, 2005 (Unaudited) and July 31, 2005 (Audited)



Condensed Consolidated Statements of Operations for the Three months ended October 31, 2005 (Unaudited) and October 31, 2004 (Unaudited)



Condensed Consolidated Statements of Cash Flow for the three months ended October 31, 2005 (Unaudited) and October 31, 2004 (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 AND REPORTS ON FORM 8-K
|--------------- | --------------------------------





SIGNATURES AND CERTIFICATIONS







2



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Conolog
  Corporation and Subsidiaries 
  Consolidated Balance Sheets





|ASSETS                                               |  | 
|---------------------------------------------------- |  | 
|Current Assets                                       |  | 
|                                                     |  | 
|Cash
      and cash equivalents                      |  | 
|Accounts
      Receivable - net allowance            |  | 
|for
      doubtful accounts of $ 1,000               |  | 
|Prepaid
      expenses                               |  | 
|Current
      portion of note receivable             |  | 
|Inventory                                            |  | 
|Other
      current assets                           |  | 
|                                                     |  | 
|Total
      Current Assets                           |  | 
|                                                     |  | 
|Property,
      Plant and Equipment                  |  | 
|Machinery
      and equipment                        |  | 
|Furniture
      and fixtures                         |  | 
|Automobiles                                          |  | 
|Computer
      software                              |  | 
|Leasehold
      improvements                         |  | 
|                                                     |  | 
|                                                     |  | 
|Less
      accumulated depreciation and amortization |  | 
|                                                     |  | 
|Net
      Property, Plant & Equipment                |  | 
|Other
      Assets                                   |  | 
|Inventory,
      net of current portion              |  | 
|Note
      receivable, net of current portion        |  | 
|Total
      Other Assets                             |  | 
|                                                     |  | 
|Total
      Assets                                   |  | 
|                                                     |  | 

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









3



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Conolog
  Corporation and Subsidiaries
  Condensed Consolidated Balance Sheets



|                                                                                |  | 
|------------------------------------------------------------------------------- |  | 
|**LIABILITIES AND
        STOCKHOLDERS' EQUITY**                                |  | 
|                                                                                |  | 
|                                                                                |  | 
|                                                                                |  | 
|Current Liabilities                                                             |  | 
|Accounts
      payable                                                          |  | 
|Accrued
      expenses                                                          |  | 
|Accrued
      legal fees                                                        |  | 
|                                                                                |  | 
|Total
      Current Liabilities                                                 |  | 
|                                                                                |  | 
|Stockholders'
      Equity                                                      |  | 
|                                                                                |  | 
|Preferred
      stock, par value $ .50; series A; 4% cumulative; 162,000 shares |  | 
|authorized;
      155,000 shares issued and outstanding                         |  | 
|                                                                                |  | 
|Preferred
      stock, par value $ .50; Series B; $ .90 cumulative; 50,000      |  | 
|shares
      authorized; 1,197 shares issued and outstanding                    |  | 
|                                                                                |  | 
|Common
      stock, par value $ .01; 20,000,000 shares authorized;              |  | 
|7,417,854
      shares issued and outstanding at July 31, 2005 and              |  | 
|October
      31, 2005, respectively, including 220 shares held in treasury     |  | 
|                                                                                |  | 
|Contributed
      capital                                                       |  | 
|                                                                                |  | 
|Retained
      (deficit)                                                        |  | 
|                                                                                |  | 
|Treasury
      shares at cost                                                   |  | 
|                                                                                |  | 
|Deferred
      compensation                                                     |  | 
|                                                                                |  | 
|Prepaid
      consulting                                                        |  | 
|                                                                                |  | 
|Total
      Stockholders' Equity                                                |  | 
|                                                                                |  | 
|Total
      Liabilities and Stockholders' Equity                                |  | 
|                                                                                |  | 





4



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Conolog Corporation 
  Condensed Consolidated Statement of Operations 
  (Unaudited)



|                                                                          |  | 
|------------------------------------------------------------------------- |  | 
|                                                                          |  | 
|                                                                          |  | 
|                                                                          |  | 
|Product
      Revenue                                                     |  | 
|                                                                          |  | 
|Cost of product
      revenue                                             |  | 
|                                                                          |  | 
|Gross
      Profit                                                        |  | 
|                                                                          |  | 
|Selling,
      general and administrative                                 |  | 
|                                                                          |  | 
|Loss
      from operations                                                |  | 
|                                                                          |  | 
|Other Income
      (Expenses)                                             |  | 
|Interest
      income                                                     |  | 
|Interest
      expense                                                    |  | 
|Total
      other income (expense)                                        |  | 
|                                                                          |  | 
|Loss from
      continuing operations, before                             |  | 
|Income
      taxes                                                        |  | 
|Benefit from
      Income Taxes                                           |  | 
|                                                                          |  | 
|Loss from
      continuing operations                                     |  | 
|                                                                          |  | 
|                                                                          |  | 
|Loss per
      share from continuing operations                           |  | 
|                                                                          |  | 
|Weighted
      Average Number of
Shares of
      Common Stock Outstanding |  | 
|                                                                          |  | 

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



5



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Conolog Corporation 
  Condensed Consolidated Statement of Cash Flows 
  For the Three Months Ended October 31, 2005 and 2004 
  (Unaudited)

|                                                             |  | 
|------------------------------------------------------------ |  | 
|                                                             |  | 
|                                                             |  | 
|Cash Flows
      from Operating Activities:                  |  | 
|Net
      Loss                                               |  | 
|                                                             |  | 
|Adustments
      to reconcile net loss to net cash (used in) |  | 
|operating
      activities:                                  |  | 
|                                                             |  | 
|Depreciation                                                 |  | 
|                                                             |  | 
|Amortization
      of deferred compensation                  |  | 
|Amortization
      of prepaid consulting expense             |  | 
|                                                             |  | 
|Changes in
      assets and liabilites:                      |  | 
|(Increase)
      decrease in accounts receivable             |  | 
|(Increase)
      in inventories                              |  | 
|(Increase)
      in other current assets                     |  | 
|                                                             |  | 
|                                                             |  | 
|Increase
      (decrease) in accounts payable                |  | 
|(Decrease)
      in accrued and other liabilities            |  | 
|**Net
      cash (used in) operating activities**            |  | 
|                                                             |  | 
|Cash Flows
      from Investing Activities:                  |  | 
|Purchase
      of equipment                                  |  | 
|**Net
      cash (used in) investing activities**            |  | 
|                                                             |  | 
|Cash Flows
      From Financing Activities:                  |  | 
|                                                             |  | 
|                                                             |  | 
|Repayment
      of loan from Officer                         |  | 
|Proceeds
      from issuance of Stock for warrants           |  | 
|Proceeds
      from note receivable                          |  | 
|**Net
      cash provided by financing activities:**         |  | 
|                                                             |  | 
|Net Increase
      (Decrease) In Cash and Cash Equivalents   |  | 
|                                                             |  | 
|Cash and
      Cash Equivalents at Beginning of Period       |  | 
|                                                             |  | 
|Cash and
      Equivalents at End of Period                  |  | 
|                                                             |  | 



6



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|Supplemental
      Disclosure of Cash Flow             |  | 
|------------------------------------------------------ |  | 
|                                                       |  | 
|                                                       |  | 
|                                                       |  | 
|Non-cash
      activities - Conversation of debentures |  | 

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









7



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NOTE
  1  UNAUDITED FINANCIAL STATEMENTS



These
  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 condensed 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 three
  months ended October 31,2005 should not necessarily be taken as indicative of
  the results of operations that may be expected for the fiscal year ending July
  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 current quarter and corresponding
  quarter of the previous year follows:



|                                                              |  |  | October
        31, |         
|------------------------------------------------------------- |  |  | ------------------- | --------
|                                                              |  |  |                     | 2005    
|Product
      Revenues                                        |  |  | $                   | 187,938 
|Costs
      and expenses                                      |  |  |                     | 902,718 
|Net Loss
      from Continuing Operations before Income Taxes |  |  |                     | (714,780
|                                                              |  |  |                     |         
|Benefit from
      Income Taxes                               |  |  |                     | 0       
|Other income
      (expense)                                  |  |  |                     | 24,769  
|Benefit from
      Income Taxes                               |  |  |                     |        
|                                                              |  |  |                     |         
|Net (Loss)                                                    |  |  | $                   | (690,011



QUARTER
  ENDED October 31, 2005



Product
  revenues for the three months ended October 31, 2005 totaled $187,938 representing
  an increase of 4.6% or $8,298 from $179,640 reported for the same three-month
  period last year. The Company attributed the increase in revenue to continuing
  orders from the Military and additional orders for the Companys utility
  PTR 1500/PDR200 systems.



Gross
  profit for products for the three months ended October 31, 2005 amounted to
  $104,452 or 55% of product revenue as compared to $53,048 or 30% of product
  revenue for the three months ended October 31, 2004.The Company attributes this
  increase in gross profit for products, directly to the increase in customer
  scheduled production deliveries.



Selling,
  general and administrative expenses increased by $427,079 for the three months
  ended October 31, 2005 as compared to October 31, 2004.The Company attributes
  the majority of this increase in Selling, General and Administrative expense
  over the three month period to an increase in the non-cash Stock Compensation
  expense of $273,875; increases in salaries paid to officers which had not been
  paid in fiscal 2004 and increases in Research and Development costs.



As
  a result of the foregoing, the Company reported a net loss from continuing operations
  of $690,011 or $0.09 per share compared to a Loss of $120,163 or $0.03 per share
  for the three months October 31, 2005 and 2004, respectively.



LIQUIDITY
  AND FINANCIAL CONDITION



Inventories
  from the Companys product segment increased from $1,870,212 at July 31,
  2005 to $1,887,477 for the quarter ended October 31, 2005, an increase of $17,265.
  The Company continues to turn over existing inventory in lieu of purchasing
  additional inventory.



8



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Accounts
  Receivable increased by $50,610 for the three months ended October 31, 2005
  to $139,804 from $89,194 for the three months ended October 31, 2004. The increase
  is attributed to an increase in production and deliveries within the Companys
  utility division and Military orders.



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



STATEMENT
  REGARDING PRESENT OPERATIONS



There
  were no material changes in the nature of the operations of the Registrant during
  the three months ended October 31, 2005. Additional 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, significant
  variations in recognizing revenue due to customer-caused delays, and 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.



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.





9



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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 - None



5.
  Other Information  None



|6.(a)  | Exhibits            |                                                                                                    
|------ | ------------------- | ---------------------------------------------------------------------------------------------------
|       |                     |                                                                                                    
|       | Number              | Description                                                                                        
|       | 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                                                                         
|       |                     |                                                                                                    
|6. (b) | Reports on Form 8-K



On
  September 30, 2005 the Company filed an 8-K/A reporting an Item 3.02 event to
  report that the Companyhad completed a Subscription Agreement
  with five investors to sell shares of its common stock.



On
  September 25, 2005 the Company filed an 8-K reporting an Item 2.02 event to
  report the Results of Operations and Conditions for the fiscal year ended July
  31, 2005.



SIGNATURES



In
  accordance with Section 13 or 15(d) 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:
        December 15, 2005 | By
        /s/ Robert S. Benou
|                                |                               
|                                |                               
|Date: December
      15, 2005   | By
      /s/ Marc R. Benou    
|                                |                               
|                                |                               





10



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