|                                  
|----------------------------------
|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

or

|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|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   

1

---



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

2

---



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

3

---



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         |  |                                             |            | 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.

4

---



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

5

---



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

6

---



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:

7

---



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

8

---



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

9

---



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

10

---



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.

In 1998, the State of New Jersey enacted legislation allowing emerging
technology and/or biotechnology companies to sell their unused New Jersey Net
Operating Loss (NOL) Carryover and Research and Development Tax Credits
(R&D Credits) to corporate taxpayers in New Jersey. During the three
month periods ended October 31, 2012 and October 31, 2011, the Company did not
enter into such agreements and did not receive such tax benefits.

11

---



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 | 
|                                 |  |                    |           |                                    |   |                                                           |  |                              |      |  |   |            | 

12

---



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 1st 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

13

---



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

14

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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.

15

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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

16

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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  | %
|                                                                                 |  |      |         |             |  |      |  |             |        |          |  |       |   |   |         |   |  |      |  

17

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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:

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. The Company did not
sell any of its available NOLs during the three month periods ended October
31, 2012 and 2011.

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.

18

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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

19

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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

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 and shelf life.

The
Company maintainsa 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 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

20

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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

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.

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

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

21

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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

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 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

22

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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.

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.

23

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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 **                                                                                                                                        

24

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|        |  |                                                  
|------- |  | -------------------------------------------------
|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

25

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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) 

26

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