|                                                                                      |                                                                                      
|------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------
|SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549                             
|FORM 10-K                                                                            
|                                                                                     
|Annual Report
Pursuant to Section 13 or 15(d) of 
the Securities Exchange Act of 1934
|                                                                                     
|x                                                                                     | Annual Report Pursuant to
 Section 13 or 15(d) of the Securities Exchange Act of 1934
|For the fiscal year ended July 31, 2010                                              

o            Transition
Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934for the transition period from
          to

Commission File Number: 0-8174

|                                                      
|------------------------------------------------------
|CONOLOG CORPORATION                                   
|(Exact name of registrant as specified in its charter)

|                                                                |  |                                   
|--------------------------------------------------------------- |  | ----------------------------------
|DELAWARE                                                        |  | 22-1847286                        
|                                                                |  |                                   
|(State or other jurisdiction of
 incorporation or organization) |  | (IRS Employer
 Identification No.)
|                                                                |  |                                   
|                                                                |  |                                   
|5 Columbia Road, Somerville, NJ                                 |  | 08876                             
|                                                                |  |                                   
|(Address of
 principal executive office)                        |  | (Zip code)                        

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

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

| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Indicate by checkmark if the registrant is a well-known seasoned
 issuer, as defined in Rule 405 of the Securities Act    Yes o No x                                                                                                                                                                                                                                                                   
| |  | Indicate by check mark if the registrant is not required to file
 reports pursuant to Section 13 or Section 15(d) of the Act    Yes o No x                                                                                                                                                                                                                                                             
| |  | Check whether the Issuer (1) has filed all reports required to be
 filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
 months (or for such shorter period that the Registrant was required to file
 such reports) and (2) has been subject to such filing requirements for the
 past 90 days.                                                                                    
| |   | Yes o No x                                                                                                                                                                                                                                                                                                                                                                                             
| |  | 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 (& 232.405of this chapter) during the preceding 12
 months (or for such shorter period that the registrant was required to submit
 and post such files)    Yeso No o
| |  | Check if there is no disclosure of delinquent filers in response to
 Item 405 of Regulation S-K contained in this form, and no disclosure will be
 contained, to the best of registrants knowledge, in definitive proxy or
 information statements incorporated by reference in Part III of this Form
 10-K or any amendment to the Form 10K. x                                                       
| |  | Indicate by check mark whether the registrant is a large accelerated
 filer, an accelerated filer, a non-accelerated filer or a small reporting
 company. See definition of large accelerated filer, accelerated filer, and
 small reporting company in Rule 12b-2 of the Exchange Act. (Check One)                                                                                                

| |                            |                             
| | -------------------------- | ----------------------------
| | Large
 accelerated filer o | Accelerated
 filer o        
| | Non-accelerated
 filer o   | Smaller
 reporting company x

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

The aggregate market value of the voting stock held by non-affiliates
of the Registrant based on the closing sale price of $0.40 on November 29, 2010
was $2,364,450.

The number of shares outstanding of the Registrants common stock
outstanding, excluding treasury shares, as of November 29, 2010 was 6,967,881.

---



TABLE OF CONTENTS

|                                                                                                                                    |  |   
|----------------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I                                                                                                                              |  |   
|                                                                                                                                    |  |   
|Item 1. BUSINESS                                                                                                                    |  | 1 
|                                                                                                                                    |  |   
|Item 2. DESCRIPTION OF PROPERTY                                                                                                     |  | 7 
|                                                                                                                                    |  |   
|Item 3. LEGAL PROCEEDINGS                                                                                                           |  | 7 
|                                                                                                                                    |  |   
|Item 4. (REMOVED AND RESERVED)                                                                                                      |  | 8 
|                                                                                                                                    |  |   
|PART II                                                                                                                             |  |   
|                                                                                                                                    |  |   
|Item 5. MARKET FOR REGISTRANTS
       COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
       SECURITIES |  | 8 
|                                                                                                                                    |  |   
|Item 6. SELECTED FINANCIAL DATA                                                                                                     |  | 9 
|                                                                                                                                    |  |   
|Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 AND RESULTS OF OPERATIONS                                      |  | 9 
|                                                                                                                                    |  |   
|Item 8. FINANCIAL STATEMENTS                                                                                                        |  | 17
|                                                                                                                                    |  |   
|Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
 AND FINANCIAL DISCLOSURE                                       |  | 18
|                                                                                                                                    |  |   
|Item 9A. CONTROLS AND PROCEDURES                                                                                                    |  | 18
|                                                                                                                                    |  |   
|Item 9B OTHER INFORMATION                                                                                                          |  | 20
|                                                                                                                                    |  |   
|PART III                                                                                                                            |  |   
|                                                                                                                                    |  |   
|Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                                                    |  | 20
|                                                                                                                                    |  |   
|Item 11. EXECUTIVE COMPENSATION,                                                                                                    |  | 22
|                                                                                                                                    |  |   
|Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 AND RELATED STOCKHOLDER MATTERS                            |  | 23
|                                                                                                                                    |  |   
|Item 13. CERTAIN RELATIONSHIPS AND
       RELATED TRANSACTIONS AND DIRECTORS INDEPENDENCE                                           |  | 24
|                                                                                                                                    |  |   
|Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                     |  | 24
|                                                                                                                                    |  |   
|PART IV                                                                                                                             |  |   
|Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                                 |  | 25
|                                                                                                                                    |  |   
|SIGNATURES                                                                                                                          |  | 28

---



PART 1

ITEM 1 - BUSINESS

FORWARD LOOKING STATEMENTS

This
document and the documents incorporated in this document by reference contain
forward-looking statements that are subject to risks and uncertainties. All
statements other than statements of historical fact contained in this document
and the materials accompanying this document are forward-looking statements.

The
forward-looking statements are based on the beliefs of our management, as well
as assumptions made by information currently available to our management.
Frequently, but not always, forward-looking statements are indentified by the
future tense and by words such as believes, expects, anticipates,
intends, will, may, could, would, projects, continues,
estimates, or similar expressions. Forward-looking statements are not
guarantees of future performance and actual results could differ materially
from those indicated by the forward-looking statements. Forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause our or our industrys actual results, level of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by the
forward-looking statements.

The
forward-looking statements contained or incorporated in this document are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 (Securities Act) and Section 21E of the Securities Exchange Act
of 1934 (Exchange Act) and are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. These statements include
declarations regarding our plans, intentions, beliefs or current expectations.

Forward-looking
statements are expressly qualified in their entirely by this cautionary
statement. The forward-looking statements included in this document are made as
of the date of this document and we do not undertake any obligation to update
forward-looking statements to reflect new information, subsequent events or
otherwise.

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

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

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

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

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

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

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

1

---



HISTORY
(continued)During the year ended July 31,
2001, we formed a wholly owned subsidiary, Lonogoc Corporation (Currently
inactive). In August, 2000, Lonogoc Corporation purchased the assets of
Independent Computer Maintenance Corporation, which provided installation,
maintenance, and troubleshooting of computer systems and networks. On October
22, 2002, we entered an agreement to rescind the Asset Purchase Agreement
between us and Independent Computer Maintenance Corporation. Under the
rescission agreement, Conolog and its subsidiary agreed to transfer all assets
previously purchased pursuant to the Asset Purchase Agreement, to the extent
they still exist, to the former seller. The return of the purchase price paid
for the assets was $600,000, $300,000 in cash at closing, a note, which is
secured by a first mortgage on a condominium, for $150,000 bearing an interest
rate of 7.5% of which will be paid over 24 months in equal monthly installments
of $6,750 per month beginning December 2002, and an unsecured note receivable
for $137,350 payable over 10 years beginning December 2004 bearing an interest
rate of 5%. During fiscal 2009, the maker of the note stopped making
payments on this note receivable and the Company reserved $83,100 at July 31,
2009. During fiscal 2010 the maker of the note made only one payment of $1,610.
The Company filed legal action and a Judgment was granted in favor of the
Company. Any future collections from the principal will be recorded as income.

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

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

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

PRESENT STATUS/BUSINESS PRODUCT DESCRIPTIONWe market
and sell our products to three basic types of customers:

| |    |                                                                           |                                        | 
| | -- | ------------------------------------------------------------------------- | -------------------------------------- | 
| | 1) | Military Sales                                                           
| |    |                                                                          | Direct contract sales to
 military    
| |    |                                                                          | As subcontractor to
 systems producers
| |    |                                                                          | Foreign governments                   
| |    |                                                                           |                                        | 
| | 2) | Commercial
 Sales (Under the trade name INIVEN (a Division of Conolog))
| |    |                                                                          | Direct sales
 to end-users            
| |    |                                                                          | Sales to
 system assemblers           
| |    |                                                                          | Sales to
 contractors/installers      

2

---



PRESENT
STATUS/BUSINESS PRODUCT DESCRIPTION (continued)

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

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

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

COMMERCIAL INIVEN SALES AND PRODUCTSINIVEN
equipment is designed around four (4) core product groups:

| |    |                                                                                                                                                         
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) | PTR and PDR Teleprotection
 Series (Protective Tone Relaying Communications Terminal), which includes the
 PTR-1000, PTR-1500 and PDR-2000.             
| |    |                                                                                                                                                         
| | 2) | Audio Tone & Telemetry
 Equipment (Audio Tone Control, Telemetering and Data Transmission Systems),
 which includes Series 98, 68, 40 and GEN-1.
| |    |                                                                                                                                                         
| | 3) | Multiplex Supervisory
 Control System                                                                                                                   
| |    |                                                                                                                                                         
| | 4) | Communication Link
 Multihead Fiber Optic Couplers and Industrial Grade 1200 Baud Modems.                                                               

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

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

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

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

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

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

The
PTR/PDR market is:

| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | New installations; i.e.,
 new transmission lines, new distribution segments, for utilities and
 cogenerators.
| |   |                                                                                                              
| |  | Existing installations not
 properly protected, improving efficiency and reducing down time.                 
| |   |                                                                                                              
| |  | Existing installations for
 upgrading to PTR/PDR technology, again improving efficiency and down time.       

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

3

---



PTR
AND PDR TELEPROTECTION SERIES (continued)

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

| |   |                                     
| | - | ------------------------------------
| |  | Municipal Systems                   
| |   |                                     
| |  | Cooperative Systems                 
| |   |                                     
| |  | Federal, State and
 District Systems
| |   |                                     
| |  | Audio Tone and Telemetry
 Equipment 

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

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

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

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

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

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

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

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

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

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

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

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

4

---



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

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

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

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

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

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

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

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

5

---



LARGEST CUSTOMERSOur
major customers during fiscal 2010 and 2009:

|                       |  |      |           |      |  |       |   |   |           |  |  |       |  
|---------------------- |  | ---- | --------- | ---- |  | ----- | - | - | --------- |  |  | ----- | -
|                       |  | 2010 |           | 2009 | 
|                       |  |      |           |      | 
|                       |  | $    |           | %    |  | $     |   | % |          
|                       |  |      |           |      |  |       |   |   |          
|Customer 1             |  | $    | 133,658   |      |  | 11.3  | % | $ | 186,002   |  |  | 12.5  | %
|Customer 2             |  |      | 376,138   |      |  | 31.9  | % |   | 638,095   |  |  | 43.0  | %
|                       |  |      |           |      |  |       |   |   |           |  |  |       |  
|                       |  | $    | 509,796   |      |  | 43.2  | % | $ | 824,097   |  |  | 55.5  | %
|                       |  |      |           |      |  |       |   |   |           |  |  |       |  
|Total Product Revenues |  | $    | 1,178,673 |      |  | 100.0 | % | $ | 1,485,298 |  |  | 100.0 | %
|                       |  |      |           |      |  |       |   |   |           |  |  |       |  

None of these customers has or had any
material relationship other than purchasing our products.

As of July 31, 2010 our backlog is approximately $830,000 for PDR-2000
systems and military sales for the fiscal year ended July 31, 2011. We consider
backlog to be received purchase orders or written commitments from customers
for specified products.

INVENTORY

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

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

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

WARRANTY AND SERVICEThe 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, at its
option, repairs or replaces products that are found defective during the
warranty period providing proper preventive maintenance procedures have been
followed by customers. Repairs that are necessitated by misuse of such products
are not covered by our warranty. In cases of defective products, the customer
typically returns them to our facility in Somerville, New Jersey. Our service
personnel then replace or repair the defective items and ship them back to the
customer. Generally all servicing is completed at our plant and customers are
charged a fee for those service items that are not covered by the warranty. We
do not offer our customers any formal written service contracts.

6

---



RESEARCH AND DEVELOPMENT

New Products 

GlowWorm Fiber Optic Detector,an independent
standalone product for detection of fiber optic cable failures without the need
to cut the cable, was introduced in September 2010. The Company has a Patent
Pending on this product. Marketing on this product has begun and we expect
sales to begin in the third quarter of fiscal year ended July 31, 2011.

The CM-100
platform is a
direct substation hardened communication consolidator that fills the existing
gap in substation communications. The hardwired CM-100 will allow our existing
products, including the PDR-2000, to operate seamlessly over fiber optics
together with existing substation equipment. This system is in final testing
and we anticipate will be ready for production in fiscal 2011. Cumulative
research and product development expense approximates $2,479,000 as of July 31,
2010.

During
fiscal years 2010 and 2009 we have invested $139,951 and $368,331 in research
and product development, respectively.

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

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

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

EMPLOYEESAs of July 31,
2010, we employed 15 people on a full-time basis, including two in management,
two in sales, one clerical, one in accounting, one in purchasing, five in
engineering and quality control and three in production. We have enjoyed good
labor relations.

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

ITEM 2 - DESCRIPTION OF PROPERTY

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

ITEM 3 - LEGAL PROCEEDINGS

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

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

7

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ITEM 3 - LEGAL PROCEEDINGS(continued)

On
May 7, 2009, The Supreme Court of New York issued a Stipulation of Dismissal,
dismissing all claims asserted by Meyers Associates, with prejudice. No appeal
has been filed by Meyers Associates, L.P. to date.

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

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

ITEM 4 - RESERVED

PART II

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

MARKET PRICE FOR COMMON STOCKOur Common Stock
is traded on the NASDAQ Capital Market, under the symbol CNLG. The following table
lists the reported high and low bid prices of our stock each quarter for the
fiscal periods indicated.

|                 |  |      |      |     |  |      | 
|---------------- |  | ---- | ---- | --- |  | ---- | 
|Common
 Stock    | 
|Fiscal Year 2010 |  | High |      | Low | 
|                 |  |      |      |     | 
|                 |  |      |      |     |  |      | 
|First Quarter    |  |      | 3.24 |     |  | 0.97 | 
|Second Quarter   |  |      | 2.75 |     |  | 1.25 | 
|Third Quarter    |  |      | 4.72 |     |  | 1.35 | 
|Fourth Quarter   |  |      | 1.70 |     |  | 0.65 | 

|                 |  |      |      |     |  |      | 
|---------------- |  | ---- | ---- | --- |  | ---- | 
|Common
 Stock    | 
|Fiscal Year 2009 |  | High |      | Low | 
|                 |  |      |      |     | 
|                 |  |      |      |     |  |      | 
|First Quarter    |  |      | 4.90 |     |  | 1.35 | 
|Second Quarter   |  |      | 3.75 |     |  | 1.05 | 
|Third Quarter    |  |      | 6.64 |     |  | 1.11 | 
|Fourth Quarter   |  |      | 2.01 |     |  | 1.07 | 

On
February 11, 2009, the Company affected a 5:1 reverse stock split. The prices
shown in the above chart have been adjusted to give retroactive effect to the
reverse stock split.

As
of July 31, 2010, the Companys Common Stock was held by approximately 450
shareholders of record. Our transfer agent is Continental Stock Transfer &
Trust Company, with offices at 17 Battery Place, 8th floor, New York,
New York, telephone number (212) 509-4000. As transfer agent for our shares of
common stock the transfer agent is responsible for all record-keeping and
administrative functions in connection with the common shares of stock.

8

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

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

|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|----------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|                                                            |  | Number of Securities to be issued
 upon exercise of outstanding
 options, warrants and rights
 (a)                                                                                                                                                                                                                                                                                                                                                |  | Weighted average
 exercise price of
 outstanding options,
 warrants and rights
 (b) |  | Number of securities
 remaining available for
 future issuance under
 equity compensation plans
 (excluding securities
 reflected in column (a))
 (c) | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|Equity compensation plans
 approved by security holders     |  | On July 9, 2002 our
 stockholders approved our 2002 Stock Option Plan under which up to 40 shares
 of our common stock may be granted to our employees, directors and
 consultants. To date, no options have been granted under this plan. The
 exercise price of options granted under the 2002 Stock Option Plan will be
 the fair market value of our common stock on the date immediately preceding
 the date on which the option is granted. |  | N/A                                                                                 |  | 158*                                                                                                                                                  | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|Equity compensation plans
 not approved by security holders |  | N/A                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                     |  |                                                                                                                                                       | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 
|Total                                                       |  | 158                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                                                                                     |  |                                                                                                                                                       | 
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                                                                                     |  |                                                                                                                                                       | 

*Represents retroactive application of reverse stock splits.


ITEM 6  SELECTED FINANCIAL DATA


N/A


ITEM 7. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Statements
used in this Form 10-K, in filings by the Company with the Securities and
Exchange Commission (the SEC), in the Companys press releases or other
public or stockholder communications, or made orally with the approval of an
authorized executive officer of the Company that utilize the words or phrases
would be, will allow, intends to, will likely result, are expected
to, will continue, is anticipated, estimate, project, or similar
expressions speaking to anticipated actions, results or projections in the
future speak only as of the date made, are based on certain assumptions and
expectations which may or may not be valid or actually occur, and which involve
various risks and uncertainties, such as those set forth above under Risk
Factors. The Company cautions readers not to place undue reliance on any such
statements and that the Companys actual results for future periods could
differ materially from those anticipated or projected. Unless otherwise
required by applicable law, the Company does not undertake, and specifically
disclaims any obligation, to update any forward-looking statements to reflect
occurrences, developments, unanticipated events or circumstances after the date
of such statement.

9

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ITEM 7. MANAGEMENTS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(continued)

The
following discussion should be read in conjunction with our consolidated
financial statements and related notes included as part of this report.

Overview

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

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

Year Ended
July 31, 2010 Compared with the Year Ended July 31, 2009, as restated

Operating
Revenues: For the last two years the majority of
the Companys sales revenue has been generated from sales of the PDR-2000 and
PTR-1500 Teleprotection products. For the fiscal year ended July 31, 2010 we
had total product revenue sales of $1,178,673 compared to revenues of
$1,485,298 for the fiscal year ended July 31, 2009, a decrease of $306,625 or
20%. The decline in sales revenues can be attributed to (a) a decrease of
approximately $273,000 or 83% decline in the PTR-1500 products as customers are
switching from old analog technical to digital technology, (b) A 7% decline in
the PDR-2000 sales due to a delay in current projects by public utilities
companies, (c) Telemetry sales decline of approximately $103,000 or 36% due
natural rhythm of our markets, we expect this category to further decline in
the coming years, (d) Military sales increased approximately $128,000 due to an
unexpected military supply contract for current and next fiscal year.

10

---



Results of Operations
(continued)

Year Ended July 31, 2010 Compared with the Year Ended
July 31, 2009, as restated

Operating Revenues(continued)

|                                                                                  |  |      |           |              |  |      |   |              |           |           |  |        |   |  |          |   |  |       |  
|--------------------------------------------------------------------------------- |  | ---- | --------- | ------------ |  | ---- | - | ------------ | --------- | --------- |  | ------ | - |  | -------- | - |  | ----- | -
|Sales
 changes by product line for the fiscal years ended July 31, 2010 and 2009.
|                                                                                  |  |      |           |              |  |      |   |              |           |           |  |        |   |  |          |   |  |       |  
|Products sold                                                                     |  | 2010 |           | %
 to
 total |  | 2009 |   | %
 to
 total |           | $
 change |  | %
 chg |  
|                                                                                  |  |      |           |              |  |      |   |              |           |           |  |        |  
|PDR-2000 digital
 teleprotection                                                  |  |      | 749,500   |              |  | 64   | % |              | 807,600   |           |  | 54     | % |  | (58,100  | ) |  | -7.2  | %
|PTR-1500 analog
 teleprotection                                                   |  |      | 54,700    |              |  | 5    | % |              | 328,100   |           |  | 22     | % |  | (273,400 | ) |  | -83.3 | %
|Telemetry equipment                                                               |  |      | 181,350   |              |  | 15   | % |              | 284,100   |           |  | 19     | % |  | (102,750 | ) |  | -36.2 | %
|Military Sales                                                                    |  |      | 170,500   |              |  | 14   | % |              | 42,000    |           |  | 3      | % |  | 128,500  |   |  | 306.0 | %
|Spare parts                                                                       |  |      | 24,000    |              |  | 2    | % |              | 25,000    |           |  | 2      | % |  | (1,000   | ) |  | -4.0  | %
|Freights                                                                          |  |      | 3,923     |              |  | 0    | % |              | 5,800     |           |  | 0      | % |  | (1,877   | ) |  | -32.4 | %
|Discounts                                                                         |  |      | (5,300    | )            |  | 0    | % |              | (7,302    | )         |  | 0      | % |  | 2,002    |   |  | -27.4 | %
|                                                                                  |  |      |           |              |  |      |   |              |           |           |  |        |   |  |          |   |  |       |  
|Net Sales Revenues                                                                |  |      | 1,178,673 |              |  | 100  | % |              | 1,485,298 |           |  | 100    | % |  | (306,625 | ) |  | -20.6 | %
|                                                                                  |  |      |           |              |  |      |   |              |           |           |  |        |   |  |          |   |  |       |  

Cost of Revenue:
Total product cost for the fiscal year ended July 31, 2010 amounted to $694,554
compared to $788,037 for the fiscal year ended July 31, 2009, a decrease of
$93,483 or 11.8% decline. Cost used in material and labor increase slightly by
$18,678 versus the prior year, mainly due to an approximate increase of $56,000
or 19% increase in direct labor in manufacturing as result of a 3% wage
increase. This labor increase was slightly offset by a decline in material
costs related to lower sales volume versus the prior year, this volume decrease
was partially offset by small increases in materials cost of approximately 4%.
Inventory obsolescence expense for the year ended July 31, 2010 was
approximately $75,500 compared to approximately $170,000 for fiscal year 2009, a
decline of approximately $94,500 this decline in the obsolescence expense can
be attributed to significant write-down of inventory taken in 2009 due to
significant quantities of inventory that was purchased in prior years and now
qualified per the Companys inventory policy to be written-off in 2009.

The
decline in our gross profit percentage of 41.1% for the fiscal year ended July
31, 2010, from 46.9% for the fiscal year 2009 can be attributed to (a) lower
sales dollars as a result of lower sales price for our largest selling item the
PRD-2000, (b) increases in direct labor costs associated with manufacturing and
(c) lower sales margins associated with Military sales.

Operating Expenses: Total Operating expenses for fiscal July 31,
2010 were $4,016,764. These expenses included general and administrative
expenses in the amount of $3,759,490 that included a non-cash expense for stock
compensation plan to employees and consultants of $1,536,000. Research and
development expense of $139,951 and selling expenses of $117,323. Total
Operating expenses for fiscal July 31, 2009, as restated, were $2,318,138,
these expenses included $1,779,243 for general and administrative which had no
non-cash expense for the stock compensation, $368,331 for research and development
and $170,564 for selling expenses. The Company attributes the net increase
(excluding stock compensation plan) of $162,626 primarily to increased spending
in business and financial consultants which was partially offset by a decrease
in research and development costs of $228,380.

General and Administrative: For the fiscal year ended July 31, 2010,
general and administrative expenses increased $1,980,247 to $3,759,490 from
$1,779,243 for the year ended July 31, 2009. This increase of 111% can be
attributed to the following: (a) the issuance of stock to employees and
consultants which created a noncash expense of $1,536,000, (b) increase in
professional fees in the amount of approximately $476,000 associated with
outside consultant fees related to financing and public relations, legal and
accounting fees needed to assist in bringing SEC filings current, (c) increase
in compensation expenses of approximately $33,500, and (d) all other costs
associated with non-manufacturing overhead items such as rent, utilities,
telephone and travel increased approximately $23,000.

Research and Development: For the fiscal year ended July 31, 2010
research and development cost were $139,951 a decrease of $228,380 versus the
prior year total of $368,331. This decline in our research and development
costs can mainly be attributed to the completion of a project to enhance the
software used in the PDR-2000 in fiscal year 2009 in the amount of
approximately $250,000.

Selling Expenses: For the fiscal year ended July 31, 2010
selling expenses were $117,323, as compared to $170,564 July 31, 2009, as
restated, a decline of $53,241 or 31%. This decline is mainly due to reductions
in commission paid due to lower sales volume and reduced costs for trade shows
and marketing expenses.

11

---



Total Other Income and Expenses: For the fiscal year ended July 31, 2010 total
other income/expense was an expense of $21, 515,442, an increase of $20,
472,965 versus the fiscal year ended July 31, 2009 restated amount of
$1,042,477. This large increase in other income (expense) is primarily a result
of recording a derivative liability associated with a subscription agreement
entered into in fiscal year 2010. The subscription agreement entered into on
August 3, 2009, had a conversion feature embedded in the Companys convertible
debt and certain warrants that required the recording of a derivative
liability. Under this derivative liability the Company recorded a non-cash loss
on derivative financial instruments of $18,958,801. Amortization expenses
associated with debt discount and deferred financing fees increased $1,548,587
and induced conversion cost decreased $471,679 for fiscal year ended July 31,
2010. Additionally, fiscal year ended July 31, 2010, the Company recorded a
beneficial conversion feature of $457,692 and an incremental consideration for
a warrant modification of $107,863.

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. During fiscal years ended July 31, 2010 and 2009, the Company entered
into agreements to sell up to $5,594,000 and $4,757,000 of its unused tax
losses. The Company received net proceeds of $284,703 and $376,819 during the
fiscal years ended July 31, 2010 and 2009 respectively, related to the sale and
accordingly recorded them as a tax benefit in the year received. The net tax
benefit recorded in the Statement of Operations for 2010 of $137,131 consists
of the proceeds received from the sale of the Companys NJ NOLs offset by the
unrecorded tax provision due to uncertain tax positions of $135,000.

Net Loss: The Company recorded a net loss of $24,910,756 for the fiscal year
ended July 31, 2010, as compared to a net loss of $2,289,415 for fiscal year
ended July 31, 2009. The increase in net loss of $22, 621,341 can mainly be
attributed to noncash transactions related to the subscription agreement
entered into in 2009. A decline in sales of approximately $307,000, along with
a decline in gross profit margin of approximately $213,000 also contributed to
the increase in the net loss. The Company reported a net loss applicable to
common shares of ($5.36) per share for fiscal 2010, compared to a net loss
applicable to common shares of ($2.36) per share, as restated for fiscal 2009.

Status of Certain Press Releases Issued:On October 19, 2009, the Company announced
that it had received orders for switches and other equipment valued at over
$300,000 for immediate deliver. A customer ordered 400 switches for $105,600 on
August 10, 2009 for immediate delivery. Delivery occurred during the periods
September 25, 2009 through December 18, 2009. At the time we also had other
orders for additional communication equipment for approximately $190,000. These
other orders were filled and shipped prior to April 30, 2010.

On
January 27, 2010, the Company announced that it started production of its
GlowWorm Fiber Optic Detector. We initially produced 100 units of the Glow
Worm. Those units along with additional modified units are being marketed to
the electrical utility industry and broadband communication companies. Since this is a new type of product customers are requesting
to field test the Glow Worm before ordering.

On
February 1, 2010, the Company issued a press release announcing that it had
received advanced orders for its PDR Systems valued at over $1,900,000. At the
time of this press release we had advanced orders for $1,900,000.
Approximately, two weeks subsequent to the press release we received an actual
purchase order in the amount of $638,000. The advance order on this $638,000
actual purchase was $936,000 resulting in a decrease of $298,000 from the
advanced orders to the actual purchases by the customer. Other advanced orders
related to the $1,900,000 in the amount of $964,000 have been subsequently
received and shipped through October 31, 2010.

On
February 17, 2010, the Company issued a press release announcing that it had
received releases for its PDR 2000 systems valued at $638,000. One of our
customers placed one purchase order with the Company for two separate
deliveries of the PDR systems totaling $638,000 in revenue. The first shipment
was for immediate delivery which commenced February 25, 1010 and completed
April 8, 2010. The balance of the shipment is expected to occur in March of
2011. The original estimate from the customer for this order was for $936,000
(which was part of the $1,900,000 advance order  as discussed above). The
difference between the original estimate of $936,000 and the final order
shipped of $638,000 was due to less expensive options and 33 fewer units
ordered than estimated.

LIQUIDITY AND CAPITAL RESOURCES

We
have had recurring losses from operations and used cash from operations in the
amounts of $1,636,745 and $1,264,120 for the years ended July 31, 2010 and
2009, respectively. At July 31, 2010, the Company had cash and equivalents
of $713,005. On August 13, 2010, an event of default occurred on our
outstanding convertible debentures. Although, the Company received a waiver
from the note holders there can be no assurance that we will not suffer further
events of default and that if we do a waiver will be obtained from our note
holders.

12

---



At
July 31, 2010, the Company had total current assets of $1,859,984 and total
current liabilities of $351,880, resulting in working capital of $1, 508,104
compared to working capital of $598,825 at year ended July 31, 2009, as
restated. The Companys current assets consists of $713,005 in cash and cash
equivalent, $826,079 in inventory, $248,297 in prepaid expenses and $67,603 in
accounts receivable. Accounts receivable decreased from $245,980 at July 31,
2009 to $67,603 at July 31, 2010. This decline in our accounts receivable is
the of result of lower sales in the last three months of our fiscal year due to
a few customers delaying their sales orders until fiscal year 2011. Prepaid
expenses increased from $47,000 at July 31, 2009 to $248,297 at July 31, 2010.
This increase is attributable to retainers paid to consultants and professional
service providers for services to be provided.

Cash
expenditures have exceeded revenues for the prior year and Management expects
this consumption of cash to continue into next year. Our operations have been
and will continue to be funded from existing cash balances and private
placements of equity funding. During our fiscal year ended July 31, 2010, we have
raised $2,000,000 from the sale of convertible debentures and $635,070 from the
exercise of warrants (See FINANCING ACTIVITIES, below). 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 $1,636,745 for fiscal year ended July 31,
2010, as compared to net cash used in operating activities in the amount of
$1,264,121 for fiscal year 2009, an increase of $372,624, this increase can be
attributed to an increase in cash used in paying down our accounts payable
liabilities ($66,600), increased spending for inventory ($313,900) and an
increased spending on cash prepaid expenses ($121,300) for an aggregate of approximately
$365,400. Additionally, accounts receivable collections increased by
approximately $178,000.

The
increase in inventory of approximately $313,900 was due to an increase in our
finished goods of $262,000, an increase in our work-in-process of $59,700 and a
decrease in our raw materials (net of obsolete inventory write downs and the
change in our reserve) of $21,800. This increase in finished goods was
attributable to an increase of 103 units of our PDR-2000 units over the July
31, 2009 year-end quantity of PDR-2000 units. The buildup of inventory for the
PDR-2000 units and our increase in work-in-process were required to meet
purchase order commitments for our quarter ended October 31, 2010.

INVESTING ACTIVITIES

Net
cash used in investing activities for the fiscal year ended July 31, 2010 was
$22,781 for the purchase of manufacturing equipment. For fiscal year ended July
31, 2009 investing activities funded $600,182 from the redemption of a
certificate of deposit.

FINANCING ACTIVITIES

Net
cash provided by financing activities was $2,345,173 for the fiscal year ended
July 31, 2010, as compared to $10, 650 provided in fiscal year 2009. In fiscal
year 2010 the Company received proceeds of $2,000,000 related to issuance of
convertible debentures and $635,070 related to the exercise of warrants. The
Company paid deferred loan costs of $291,507.

On
August 3, 2009, the Company entered into a Subscription Agreement pursuant to
which it sold a $500,000 convertible debenture on August 3, 2009 and a $500,000
Debenture on September 24, 2009. (Collectively, the August 2009 Debentures).
The initial interest rate of the August 2009 Debentures is 4% per annum and
upon the shareholder Approval the interest rate will be 8% per annum. The
August 2009 Debentures have maturity dates of 15 months from their closing
dates. Interest shall accrue from the closing date and shall be payable
quarterly, in arrears, commencing six months after the closing date. The August
2009 debentures are convertible into shares of the Companys common stock at a
conversion price of $0.78 per share. Commencing six months after the closing
date, the Conversion Price shall be adjusted to the lesser of the $0.78 or 75%
of the lowest three closing bid prices for the Companys common stock for the
ten days prior to when the August 2009 Debenture is converted.

In
connection with the August 2009 Debentures, the Company issued Class A and
Class B warrants. The Class A warrants provide the holder with the option to
purchase 2,564,102 shares of the Companys common stock at an exercise price
$1.12 per share. The Class A warrants are exercisable for a period beginning on
August 3, 2009 and terminate on August 3, 2014. Additionally, the 40,000 Class
B Warrants issued entitles the holder until July 3, 2012, to purchase up to
$4,000,000 of principal amount of the Companys 8% notes on the same terms as
the August 2009 Debentures. Upon the exercise of the Class B Warrants, the
holder of the Class B Warrant will be issued two Class C Warrants for each
share of the Companys common stock that would be issued on the exercise date
of the Class B Warrant assuming the full conversion of the notes issued on such
date. The Class C warrants entitle the warrant holder to purchase 10,256,408
shares of the Companys Common Stock with and exercise price equal to the
lesser of 105 % of the closing bid price of the Companys common stock or the
exercise price of the Class
A Warrants. For each $100,000 principal of notes purchased pursuant to the
Class B Warrants, the holder will surrender 1,000 Class B Warrants.

13

---



The
August 2009 Debentures cannot be converted to the extent such conversion would
cause the Debenture holder, together with such holders affiliates, to
beneficially own in excess of 4.99% of the of the Companys outstanding common
stock immediately following such conversion. The Company also entered into a
Security Agreement pursuant to which it granted the Subscribers a security
interest in its assets. The Security Agreement will terminate when the August 2009
Debentures, including outstanding interest due thereon are repaid.

In
connection with the August 2009 Debenture agreement entered into on August 3,
2009, the Company paid Garden State Securities, Inc., the selling agent, a cash
fee of $100,000 and issued warrants to purchase 256,410 shares of the Companys
common stock. The Company calculated the fair value of the warrants on August
3, 2009 at $231,025 using the Black-Scholes option pricing model.

At
various times during the year ended July 31, 2010, an aggregate $1,000,000 of
the August 2009 Debentures and $36,968 of accrued interest were converted into
1,329,447 shares of the Companys common stock. As of July 31, 2010 the
remaining balance of the August 2009 Debentures were $0.

On
February 24, 2010, holders of the Class B warrants exercised 10,000 Class B
Warrants to purchase $1,000,000 in convertible notes (February 2010
Debentures). The February 2010 Debentures were issued under the same terms as
the August 2009 Debentures. With the exercise of the 10,000 Class B warrants,
the Company also issued Class C Warrants to purchase 2,564,104 shares of the
Companys common stock at an exercise price of $1.12.

In
connection with the exercise of the Class B warrants and pursuant to Selling
Agent Agreement the Company paid Garden State Securities, Inc., a cash fee of
$100,000 and issued Garden State additional warrants to purchase 256,410 shares
of the Companys common stock. The Company calculated the fair value of the
warrants on March 3, 2010 to be $380,256 using the Black-Scholes option pricing
model.

The
August 2009 Debentures, February 2010 Debentures, Class A warrants, Class B
warrants, Class C warrants and the warrants granted to the selling agent
contain provisions whereby if the Company shall offer, issue or agree to issue
any common stock or securities into or exercisable for shares of common stock
to any person or entity at a price per share or conversion or exercise price
per share which shall be less than the conversion price of the August 2009 Debentures
and February 2010 Debentures or less than the exercise price of the Class A
warrants, Class B warrants, Class C warrants or the warrants granted to the
selling agent, then the conversion price and the warrant exercise price shall
automatically be reduced to such other lower issue price. Due to this
provision, the embedded conversion features of the Debentures and the warrants
are not considered indexed to the Companys stock. Accordingly, these financial
instruments have been recorded as a derivative liability.

On
June 18, 2010, Conolog Corporation (the Company) entered into an amendment
with the holders of its outstanding convertible debentures and warrants.
Pursuant to the amendments, the parties agreed to the following: (i) remove the
above provision which allowed for an adjustment to the conversion price of the
debentures or exercise price of the debentures, (ii) the conversion feature of
the February 2010 Debentures were adjusted to a fixed conversion price $0.60,
(iii) all future Class C Common Stock Purchase Warrants issued upon exercise of
the Class B Common warrants shall have an exercise price of $0.50 per share,
(iv) the exercise price of the outstanding Class C warrants shall be adjusted
to $0.50 per share, (v) the exercise price of the outstanding selling agent
warrants shall be adjusted to $0.60 per share.

As
a result of the June 18, 2010 amendments the embedded conversion features of
the debentures and the warrants were considered indexed to the Companys stock.
Accordingly, the outstanding derivative liabilities were reclassified to
additional paid in capital at their fair value on June 18, 2010 with the change
in fair value being recorded in the statement of operation.

After
the accounting for the embedded derivatives, induced conversion costs, interest
expense, amortization of debt discounts and amortization of deferred financing
fees the above financing transactions increased our net loss by $21,514,072.
The $21,514,072 had no effect on the Companys cash flow. Through the accounting
for induced conversion costs, exercise of warrants, conversions of convertible
debt and the reclassification of derivative liabilities the above financing
transactions increased our additional paid in capital by $23,998,405.

INFLATIONManagement 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.

14

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

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

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTSThe 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 AGINGInventories 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 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.
Ongoing 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.

15

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WARRANTYThe 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 TAXESThe 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. See note
6, Income Taxes.

DERIVATIVE LIABILITYDerivative
liabilities consist of certain common stock warrants, and conversion features
embedded in our convertible Debenture notes. These financial instruments are
recorded in the balance sheet at fair value, determined using the Black-
Scholes option pricing model, as liabilities. Changes in fair value are
recognized in the statement of operations in the period of change.

STOCK BASED COMPENSATIONThe 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 INSTRUMENTSThe carrying
amounts of cash and 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 MEASUREMENTSThe 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.                                                                                                                                                                                        

DEBT DISCOUNTThe Company
follows the authoritative guidance for accounting for debt discount and
valuation of detachable warrants the Company recognized the value of detachable
warrants issued in conjunction with issuance of the secured convertible
Debenture notes. The Company valued the warrants using the Black-Scholes
pricing model. The Company recorded the warrant relative fair value as an
increase to additional paid-in capital and discount against the related debt.
The discount attributed to the value of the warrants is amortized over the term
of the underlying debt using the effective interest method.

16

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EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting PronouncementsIn May 2008, the FASB
issued guidance related to accounting for convertible debt instruments that may
be settled in cash upon conversion (including partial cash settlements). This
guidance requires a portion of this type of convertible debt to be recorded as
equity and to record interest expense on the debt portion at a rate that would
have been charged on nonconvertible debt with the same terms. This guidance is
effective for the Companys fiscal year beginning August 1, 2009. The adoption
of this guidance did not have a significant impact on the Companys
consolidated financial statements.

In
June 2008, the FASB issued guidance related to determining whether instruments
granted in share-based payment transactions are participating securities.
Securities participating in dividends with common stock according to a formula
are participating securities. This guidance determined that unvested shares of
restricted stock and stock units with nonforfeitable rights to dividends are
participating securities. Participating securities require the two-class
method to be used to calculate basic earnings per share. This method lowers
basic earnings per common share. This guidance is effective for the Companys
fiscal year beginning August 1, 2009. The adoption of this guidance did not
have a significant impact on the Companys consolidated financial statements.

In
June 2008, the FASB reached a consensus regarding the determination of whether
an instrument (or an embedded feature) is indexed to an entitys own stock,
which is the first part of the scope exception related to accounting for
derivative instruments and hedging activities. This guidance is effective for
the Companys fiscal year beginning August 1, 2009. The Company determined that
the conversion features embedded in its convertible Debentures and certain of
its warrants with price protection provisions are not considered to be indexed
to the Companys own stock, therefore, they do not meet the scope exception and
thus should be accounted for as a liability. During the fiscal year ended July
31, 2010, the adoption of this guidance resulted in a loss on derivative
financial instruments in the amount of $18,958,801.

In
June 2009, the FASB issued guidance which stipulates the FASB Accounting
Standards Codification is the source of authoritative U.S. GAAP recognized by
the FASB to be applied by nongovernmental entities. This guidance is effective
for the Companys fiscal year beginning August 1, 2009. The adoption of this
guidance did not have a significant impact on the Companys consolidated
financial statements.

Recently Issued Accounting PronouncementsIn October 2009, the
FASB issued guidance on multiple deliverable revenue arrangements which
eliminates the residual method of allocation and requires the relative selling
price method when allocating deliverables of a multiple-deliverable revenue
arrangement. The determination of the selling price for each deliverable
requires the use of a hierarchy designed to maximize the use of available
objective evidence including, vendor specific objective evidence, third party
evidence of selling price, or estimated selling price. This guidance is
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, and must be
adopted in the same period using the same transition method. If adoption is
elected in a period other than the beginning of a fiscal year, the amendments
in these standards must be applied retrospectively to the beginning of the
fiscal year. Full retrospective application of these amendments to prior fiscal
years is optional. Early adoption of these standards may be elected. The
Company is currently evaluating the impact of this new accounting guidance on
its consolidated financial statements.

In
January 2010, the FASB issued additional guidance on fair value measurements and
disclosures which requires reporting entities to provide information about
movements of assets among Level 1 and 2 of the three-tier fair value hierarchy
established by the existing guidance. The guidance is effective for any fiscal
year that begins after December 15, 2010, and it should be used for quarterly
and annual filings. The Company is currently evaluating the impact of this new
accounting guidance on its consolidated financial statements.

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

ITEM 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

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

17

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

Bagell,
Josephs, Levine & Company LLC was retained by the Company on September 21,
2004 to serve as its independent registered public accountants. Conolog
Corporation (the Company) was notified that the audit practice of Bagell,
Josephs, Levine & Company, LLC, the Companys independent registered public
accounting firm (BJL), was combined with Friedman LLP (Friedman) on January
1, 2010. As of the same date, BJL resigned as the independent registered public
accounting firm of the Company and, with the approval of the Audit Committee of
the Companys Board of Directors, Friedman was engaged as the Companys
independent registered public accounting firm. Prior to that date, Friedman LLP
did not perform any services nor receive any fees from the Company.

On
July 8, 2010, Conolog Corporation (the Company) dismissed Friedman LLP
(Friedman) as the Companys independent registered public accounting firm.
The decision to dismiss Friedman was approved by the audit committee of the
Companys board of directors on July 8, 2010.

On
July 23, 2010 the Company engaged WithumSmith+Brown, PC (Withum) to serve as
the Companys independent registered public accounting firm. During the recent
fiscal years ending July 31, 2009 and July 31, 2008, and the subsequent interim
period prior to the engagement of Withum, neither the Company nor anyone on its
behalf consulted Withum regarding the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Companys financial statements, and
neither a written report was provided to the Company nor oral advice was
provided that Withum concluded was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or financial
reporting issue; or any matter that was either the subject of a disagreement
(as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the
related instructions to this item) or a reportable event (as described in
paragraph (a)(1)(v) of Item 304 of Regulation S-K).

ITEM 9A. CONTROLS AND PROCEDURESThis item is not
applicable.

ITEM 9A (T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and ProceduresIn connection with the
preparation of the Companys Annual Report on Form 10-K, an evaluation was
carried out by our management, with participation of our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (Exchange Act) as of the end of the period
covered by this report. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in reports filed and submitted
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified, and that such information is accumulated and
communicated to management, included the Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.

During
evaluation of disclosure controls and procedures as of the end of the period
covered by this report, conducted as part of the Companys annual audit and
preparation of our annual financial statements, several material weaknesses
were identified. As a result of the material weaknesses, described more fully
below, our Chief Executive Officer and Chief Financial Officer concluded that,
as of July 31, 2010, the Companys disclosure controls and procedures were
ineffective.

The
Company instituted and is continuing to implement corrective actions with
respect to the deficiencies in our disclosure controls and procedures.

18

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ITEM 9A (T). CONTROLS AND PROCEDURES(continued)

Managements Annual Report on Internal Control over
Financial ReportingManagement is responsible for
establishing and maintaining adequate internal control over financial
reporting, as defined in Rules 13a-15(f) under the Exchange Act. The Companys
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of the Companys financial
reporting and the preparation of consolidated financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness in future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.

Management
has conducted, with the participation of the Chief Executive Officer and Chief
Financial Officer, an evaluation of the effectiveness of the Companys internal
control over financial reporting as of the end of the period covered by this
report. Managements assessment of internal control over financial reporting
was conducted using the criteria set forth in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Companys annual or interim financial
statements will not be prevented or detected on a timely basis. Based on
managements assessment of internal control over financial reporting,
management believes as of July 31, 2010, the Companys internal control over
financial reporting was not effective due to the following material weaknesses:

|  |                                                                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 Company lacks sufficient personnel with an appropriate level of experience
 and knowledge of generally accepted accounting principles and SEC reporting
 requirements.                                                                                                                                                  
| | The
 Company lacks adequate accounting resources to address non routine and
 complex transactions and financial reporting matters on a timely basis.
 Consequently various accounts were materially misstated in the previously issued
 financial statements which have caused a restatement of previously reported
 amounts.
| | The
 Company lacks adequate segregation of duties control concerning Information
 Technology (IT). IT personnel perform accounting transactions, programming
 function and controls security function with the Company for IT.                                                                                             
| | The
 Company lacks appropriate environmental controls needed to ensure the
 security and reliability of IT equipment.                                                                                                                                                                                                        
| | The
 Company lacks adequate journal entry approval and disclosure controls needed
 to identify and prevent misstatements in the consolidated financial
 statements and accompanying footnotes.                                                                                                                               
| | The
 Companys control environment does not have adequate segregation of duties;
 the Company only had one person performing all accounting-related on-site
 duties.                                                                                                                                                         

This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that
permit us to provide only managements report in this annual report.

Remediation of Material Weaknesses in Internal Control
over Financial ReportingThe Company has commenced
efforts to address the material weaknesses in its internal control over
financial reporting and its control environment through the following actions:

| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Supplementing
 existing resources with technically qualified third party consultants.                                                                             
| |  | Institute
 a more stringent approval process for financial transactions                                                                                           
| |  | Perform
 additional procedures and analysis for significant transactions as a
 mitigating control in the control environment due to segregation of duties
 issues.

The
Company believes that the consolidated financial statements fairly present, in
all material respects, the Companys consolidated balance sheets as of July 31,
2010 and 2009 and the related consolidated statements of operations,
stockholders equity, and cash flows for the years ended July 31, 2010 and
2009, in conformity with generally accepted accounting principles,
notwithstanding the material weaknesses we identified.

Changes in Internal Control over Financial ReportingOther than described above,
there have been no changes in the Companys internal control over financial
reporting during the most recently completed fiscal year ended July 31, 2010,
that have materially affected or are reasonably likely to materially affect the
Companys internal control over financial reporting.

19

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ITEM 9A (T). CONTROLS AND PROCEDURES(continued)

Inherent Limitations on Effectiveness of ControlsOur Management,
including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal controls
will prevent all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect that there are resources constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.

ITEM 9B - OTHER INFORMATION

On September 29, 2010 the Company received a subpoena from the Securities and Exchange Commission (the Commission) in connection with an investigation of possible securities law
violations by the Company that is a non-public, fact finding inquiry, which as noted by the Commission should not be construed as an indication by the Commission or its staff that any violation of the law has occurred or as an adverse reflection
upon any person, entity or security. The Company has responded to the subpoena and has not received further correspondence from the Commission with respect to the subpoena as of the date of this filing. At this time it is not possible to predict the
outcome of the investigation or its impact on Company.

On June 23, 2010, the Company received a NASDAQ Staff Deficiency
Letter stating that the Company no longer complied with the NASDAQ Listing Rules
(the Listing Rules) for continued listing on The NASDAQ Stock Market (NASDAQ) because the Company had not
maintained a minimum of $2,500,000 in stockholders equity as required by Listing Rule 5550(b)(1), and because the Companys Form
10-Q for the period ended April 30, 2010, had not yet been reviewed in accordance with Statement of Auditing Standards No. 100, as
required by Rule 8-03 of Regulation S-X, pursuant to Listing Rule 5250(c)(1). Thereafter, on June 23, 2010, the Company received a
NASDAQ Staff Determination Letter indicating that the Staff had concluded that the Company had not solicited proxies or held its
annual meeting within the timeframe required by Listing Rules 5620(a) and 5620(b) and accordingly, determined to initiate procedures
to delist the Companys securities from NASDAQ. Finally, on August 13, 2010, the Company received a NASDAQ Staff Deficiency Letter stating that,
as the bid price of the Companys common stock had closed below the minimum $1.00 per share requirement set
forth in by NASDAQ Listing Rule 5550(a)(2), and in accordance with Listing Rule 5810(c)(3)(A), the Company had been provided 180 calendar
days, or until February 9, 2011, to regain compliance with that requirement.

As a result of the Companys receipt from NASDAQ of the June 23, 2010 Staff Deficiency Letter, an event
of default occurred with respect to the Companys
outstanding Secured Convertible Notes. As a result of the event of default the
interest rate on the outstanding Notes increased to 15% per annum. Pursuant to
a waiver dated November 27, 2010, the holders of the Outstanding Notes waived
the event of default which may have occurred with respect to the receipt of the
June 23, 2010 Staff Deficiency Letter.

PART III

ITEM 10 - DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE

The
following table sets forth certain information regarding the officers and
directors of the Company as of November 15, 2010.

|                 |  |     |  |                                                                         
|---------------- |  | --- |  | ------------------------------------------------------------------------
|Name             |  | Age |  | Position                                                                
|                 |  |     |  |                                                                         
|Robert S. Benou  |  | 75  |  | Chairman,
 Chief Executive Officer, Chief Financial Officer and Director
|Marc R. Benou    |  | 41  |  | President,
 Chief Operating Officer, Secretary and Director             
|Louis S. Massad  |  | 73  |  | Director                                                                
|Edward J. Rielly |  | 41  |  | Director                                                                
|David M. Peison  |  | 41  |  | Director                                                                

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

Marc R. BenouMarc R. Benou has been the
Companys President and Chief Operating Officer since May 1, 2001. Mr. Benou
joined the Company in 1991 and is responsible for new product development and
supervision of sales and marketing. From March 1995 until May 1, 2001, he
served as Vice President. Mr. Benou has been on the Companys Board and has
served as the Companys assistant secretary since March 1995. Mr. Benou
attended Lehigh and High Point University and holds a BS degree in Business
Administration and Management. Marc R. Benou is the son of Robert S. Benou, the
Companys Chairman and Chief Executive Officer. Mr. Benous experience as the
Companys president and chief operating officer led to the conclusion that Mr.
Benou should serve on the Board of Directors, given the Companys business and
structure.

Louis S. MassadLouis S. Massad has been a
Director of the Company since April 1995. Mr. Massad was Chief Financial
Officer and a Director of Henry Bros. Electronics, Inc. (formerly known as
Diversified Security Solutions, Inc.), from 2000 until August 2003. From 1997
to 2000, Mr. Massad was a consultant to Diversified Security Solutions, Inc.
From 1986 to 1997, Mr. Massad was a Vice President, Chief Financial Officer and
Director of Computer Power Inc. Mr. Massad holds a BS and MS degree from Cairo
University (Egypt) and an MBA from Long Island University, New York. Mr.
Massads business management and financial experience and knowledge led to the
conclusion that Mr. Massad should serve on the Board of Directors, given the
Companys business and structure.

20

---



ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE(continued)

Edward J. RiellyEdward J. Rielly has been a
Director of the Company since January 1998. Mr. Rielly is a Senior Application
Developer with Household International, a financial corporation. From March
2000 to November 2001, Mr. Rielly was a Senior Consultant with Esavio
Corporation. From February 1998 to February 2000, Mr. Rielly was an Application
Developer with Chubb Corporation. From 1993 to 1998, Mr. Rielly was an
Application Developer with the United States Golf Association. Mr. Rielly is a
graduate of Lehigh University and holds a BS in Computer Science. Mr. Riellys
technical experience and knowledge led to the conclusion that Mr. Rielly should
serve on the Board of Directors, given the Companys business and structure.

David M. PeisonDavid M. Peison has been a
Director of the Company since October 2004. Since 2005, Mr. Peison has been
vice president with the emerging markets division of HSBC. From 2002 until
2005, Mr. Peison was with Deutsche Banks global markets division in New York
City. From 1992 to 2000, Mr. Peison was in a Private Law Practice in Florida
and New York City. Mr. Peison holds an MBA from Emory University in Atlanta,
Ga., a JD from The Dickinson School of Law of Pennsylvania State University and
is admitted to Florida, New York and Massachusetts Bars. Mr. Peison obtained
his BA degree from Lehigh University in Bethlehem, Pa. Mr. Peisons business
management and financial experience and knowledge led to the conclusion that
Mr. Peison should serve on the Board of Directors, given the Companys business
and structure

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

Audit CommitteeThe Companys Board of
Directors has determined that David M. Peison is the Audit Committees
Financial Expert and that he is independent as defined under National
Association of Securities Dealers Automated Quotations system.

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

Changes in Nominating ProceduresNone

Section 16(a) ComplianceSection 16(a) of the Exchange
Act, requires our directors and officers, and persons who own more than 10% of
our Common Stock, to file with the Securities and Exchange Commission initial
reports of beneficial ownership and reports of changes in beneficial ownership
of our Common Stock and other equity securities. Our officers, directors and
greater than 10% beneficial owners are required by SEC regulation to furnish us
with copies of all Section 16(a) forms they file. To our knowledge, based
solely on a review of the copies of such reports furnished to us and written
representations that no other reports were required, during the fiscal year
ended July 31, 2010, all Section 16(a) filing requirements applicable to our
officers, directors and greater than 10% beneficial owners were complied with
except that Form 4s for David Peison, Edward Rielly, Robert Benou and Marc
Benou were not timely filed. These Forms have since been filed.

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

Board Leadership Structure and Role in Risk OversightAlthough we have
not adopted a formal policy on whether the Chairman and Chief Executive Officer
positions should be separate or combined, we have traditionally determined that
it is in the best interests of the Company and its shareholders to combine
these roles. Mr. Robert Benou has served as our Chairman since May 2001. Due to
the small size of the Company, we believe it is currently most effective to
have the Chairman and Chief Executive Officer positions combined.

21

---



ITEM 11- EXECUTIVE COMPENSATION

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

|                        |  |                             |  |        |         |       |   |                               |  |                                                                             |         |                                       |   |        |  |  |   |  |   |        | 
|----------------------- |  | --------------------------- |  | ------ | ------- | ----- | - | ----------------------------- |  | --------------------------------------------------------------------------- | ------- | ------------------------------------- | - | ------ |  |  | - |  | - | ------ | 
|Name
 and
 Title        |  | Fiscal
 Year
 End
 July 31, |  | Salary |         | Bonus |   | Restricted
 Stock
 Awards (3) |  | Closing Price of
 of Common
 Stock on
 Date of the
 Restricted Stock
 Award |         | Securities
 Underlying
 Option/
 SARS |   | Other* | 
|                        |  |                             |  |        |         |       |   |                               |  |                                                                             |         |                                       |   |        | 
|Robert Benou            |  | 2010                        |  | $      | 259,749 |       |   |                              |  | $                                                                           | 403,200 |                                       | $ | 1.92   |  |  |   |  | $ | 28,000 | 
|Chief Executive         |  | 2009                        |  | $      | 110,833 |       |   |                              |  | $                                                                           |        |                                       | $ |       |  |  |   |  | $ | 16,000 | 
|Officer, CFO & Director |  | 2008                        |  | $      | 348,333 |       | $ | 70,000                        |  | $                                                                           | 424,880 |                                       | $ | 1.88   |  |  |  |  | $ | 21,500 | 
|                        |  |                             |  |        |         |       |   |                               |  |                                                                             |         |                                       |   |        |  |  |   |  |   |        | 
|Marc Benou              |  | 2010                        |  | $      | 238,200 |       | $ |                              |  | $                                                                           | 403,200 |                                       | $ | 1.92   |  |  |  |  |   |       | 
|President, COO          |  | 2009                        |  | $      | 208,516 |       | $ |                              |  | $                                                                           |        |                                       | $ |       |  |  |  |  |   |       | 
|Secretary & Director    |  | 2008                        |  | $      | 173,949 |       | $ | 40,000                        |  | $                                                                           | 432,400 |                                       | $ | 1.88   |  |  |  |  |   |       | 
|                        |  |                             |  |        |         |       |   |                               |  |                                                                             |         |                                       |   |        |  |  |   |  |   |        | 
|Thomas Fogg             |  | 2010                        |  | $      | 39,453  |       | $ |                              |  | $                                                                           | 57,600  |                                       | $ | 1.92   |  |  |  |  |   |       | 
|Vice-President          |  | 2009                        |  | $      | 43,040  |       | $ |                              |  | $                                                                           |        |                                       | $ |       |  |  |  |  |   |       | 
|Engineering             |  | 2008                        |  | $      | 43,040  |       | $ |                              |  | $                                                                           | 47,000  |                                       | $ | 1.88   |  |  |  |  |   |       | 

* Other compensation
consisted of a car allowance.

|   |                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | The Company paid Robert
 Benous 2008 bonus by July 31, 2008.                                                                                                                                  
|2. | The Company paid Marc
 Benous bonus by July 31, 2008.                                                                                                                                         
|3. | Under the Employee Stock
 Grant Plans for 2008 and 2009, stockholders approved the granting of 800,000
 shares of our common stock, under each plan, to our directors, officers and
 employees.
|4. | During fiscal year 2009,
 Robert Benou forgave $286,467 of salary and during fiscal 2010, Robert Benou
 forgave $157,551 of his salary.                                                        

Outstanding equity awards at
fiscal year end.

|             |  |                                                                           |  |                                                                             |  |                                                                                                           |  |                             |  |                          |  |                                                                   |  |                                                                         |  |                                                                                                                  |  |                                                                                                                                    | 
|------------ |  | ------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --------------------------- |  | ------------------------ |  | ----------------------------------------------------------------- |  | ----------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- | 
|Name         |  | Option
 Awards                                                            |  | Stock
 Awards                                                               | 
|             |  |                                                                           |  |                                                                             | 
|             |  | Number
 of
 Securities
 Underlying
 Unexercised
 Options (#)
 Exercisable |  | Number
 of
 Securities
 Underlying
 Unexercised
 Options (#)
 Unexercisable |  | Equity
 Incentive
 Plan Awards:
 Number of
 Securities
 Underlying of
 Unexercised
 Unearned
 Options (#) |  | Option
 Exercise
 Price ($) |  | Option
 Expiration
 Date |  | Number
 of
 Shares or
 Units of
 Stock That
 Have Not
 Vested (#) |  | Market
 Value of
 Shares or
 Units of
 Stock That
 Have Not
 Vested ($) |  | Equity
 Incentive
 Plan Awards:
 Number of
 Unearned
 Shares,
 Units or
 Other Rights
 That Have
 Not Vested (#) |  | Equity
 Incentive
 Plan Awards:
 Market or
 Payout
 Value of
 Unearned
 Shares,
 Units or
 Other Rights
 That Have
 Not Vested ($) | 
|             |  |                                                                           |  |                                                                             |  |                                                                                                           |  |                             |  |                          |  |                                                                   |  |                                                                         |  |                                                                                                                  |  |                                                                                                                                    | 
|Robert Benou |  | 0                                                                         |  | 0                                                                           |  | 0                                                                                                         |  | 0                           |  | 0                        |  | 0                                                                 |  | 0                                                                       |  | 0                                                                                                                |  | 0                                                                                                                                  | 
|             |  |                                                                           |  |                                                                             |  |                                                                                                           |  |                             |  |                          |  |                                                                   |  |                                                                         |  |                                                                                                                  |  |                                                                                                                                    | 
|Marc Benou   |  | 0                                                                         |  | 0                                                                           |  | 0                                                                                                         |  | 0                           |  | 0                        |  | 0                                                                 |  | 0                                                                       |  | 0                                                                                                                |  | 0                                                                                                                                  | 

On July 9, 2002 our
stockholders approved our 2002 Stock Option Plan under which up to 158 shares
of our common stock may be granted to our employees, directors and consultants.
To date, no options have been granted under this plan. The exercise price of
options granted under the 2002 Stock Option Plan will be the fair market value
of our common stock on the date immediately preceding the date on which the
option is granted.

22

---



ITEM 11-
EXECUTIVE COMPENSATION (continued)

EMPLOYMENT AGREEMENTSMr. Robert Benou
is serving under an employment agreement commencing June 1, 1997 and ending May
31, 2002, which pursuant to its terms, renews for one-year terms until
cancelled by either the Company or Mr. Benou. Mr. Benous annual base salary as
of July 31, 2010 was $417,300 (actual 2010 salary drawn was $259,749, the
difference of $157,551 has been forgiven by Mr. Benou and he does not hold the
Company liable for this amount) and increases by $20,000 annually on January 1st
of each year. In addition, Mr. Benou is entitled to an annual bonus equal to 6%
of the Companys annual income before income tax provision as stated in its
annual Form 10-K. The employment agreement also entitles Mr. Benou to the use
of an automobile and to employee benefit plans, such as; life, health, pension,
profit sharing and other plans. Under the employment agreement, employment
terminates upon death or disability of the employee and the employee may be
terminated by the Company for cause.

Mr. Marc Benou is serving
under an employment agreement commencing June 1, 1997 and ending May 31, 2002,
which pursuant to its terms, renews for one-year terms until cancelled by
either the Company or Mr. Benou. Mr. Benous annual base salary as of July 31,
2010 was $238,200 and he receives annual increases of $12,000 on January 1st
of each year. Mr. Benou is entitled to an annual bonus equal to 3% of the
Companys annual income before income tax provision as stated in its annual
Form 10-K. The employment agreement also entitles Mr. Benou to the use of an
automobile and to employee benefit plans, such as; life, health, pension,
profit sharing and other plans. Under the employment agreement, employment is
terminated upon death or disability of the employee and employee may be
terminated by the Company for cause.

COMPENSATION OF DIRECTORSNo director of
the Company receives any cash compensation for their services as such, but
directors may receive stock options pursuant to the Companys stock option plan
and grants of the Companys common stock. Currently, the Company has three
directors who are not employees, Messrs. Louis Massad, David Peison and Edward
Rielly. No cash or stock compensation has been granted to any director during
the years ended July 31, 2010 and 2009.

RISK MANAGEMENTThe Company does not believe
risks arising from its compensation policies and practices for its employees
are reasonably likely to have a material adverse effect on the Company.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

The following table sets
forth, as of July 31, 2010, certain information with respect to the beneficial
ownership of our common stock by each stockholder known by us to be the
beneficial owner of more than 5% of our common stock and by each of our current
directors and executive officers. Each person has sole voting and investment
power with respect to the shares of common stock, except as otherwise
indicated.

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

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

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

Shares of common stock which
an individual or group has a right to acquire within 60 days pursuant to the
exercise or conversion of options are deemed to be outstanding for the purpose
of computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage ownership
of any other person shown in the table. The applicable percentage of ownership
at July 31, 2010 is based on 6,967,881 shares issued and outstanding.

23

---



ITEM 12
- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (continued)

|                                                                                          |  |                                            |           |                   |  |       |  
|----------------------------------------------------------------------------------------- |  | ------------------------------------------ | --------- | ----------------- |  | ----- | -
|Name and Title                                                                            |  | Amount and Nature
 of Beneficial Ownership |           | Percent of
 Class | 
|                                                                                          |  |                                            |           |                   | 
|Robert S. Benou, Chairman,
 Chief Executive Officer                                       |  |                                            | 426,666   |                   |  | 6.12  | %
|Chief Financial Officer and
 Director Marc R. Benou, President,
 Chief Operating Officer, |  |                                            | 517,923   |                   |  | 7.43  | %
|Secretary and Director Louis Massad, Director                                             |  |                                            | 37,500    |                   |  | 0.54  | %
|Edward J. Rielly, Director                                                                |  |                                            |          |                   |  | 0.00  | %
|David M. Peison, Director                                                                 |  |                                            | 74,667    |                   |  | 1.07  | %
|Thomas Fogg, Vice President
 -Engineering Deceased 6/18/10                                |  |                                            |          |                   |  | 0.00  | %
|                                                                                          |  |                                            |           |                   |  |       |  
|All Officers and Directors
 as a Group (6 persons)                                        |  |                                            | 1,056,756 |                   |  | 15.16 | %

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTORS INDEPENENCE

Certain
relationships and Related Transactions

Marc Benou, President, Chief
Operating Officer, Secretary and Director is the son of Robert Benou, Chairman,
Chief Executive Officer, Chief Financial Officer and Director.

Board
determination of Independence

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

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit FeeBagell Josephs Levine &
Company LLC billed the Company in the aggregate amount of $45,000 for
professional services rendered for their audit of our annual financial
statements and their reviews of the financial statements included in our Forms
10-Q for the year ended July 31, 2009. With the engagement of
WithumSmith+Brown, PC for the re-audit of fiscal 2009, including the opening
balances of fiscal 2008 and the current fiscal 2010, the Company expects audit
fees of approximately $200,000. Withum has not billed the Company for any audit
services as of July 31, 2010.

Audit-Related Fees 
No fees were billed during the years ended July 31, 2010 and 2009 for assurance
and related services by either WithumSmith+Brown, PC or Bagell, Josephs, Levine
& Company LLC that are reasonably related to the performance of the audit
or review of the Companys financial statements and are not reported under the
category Audit Fees described above.

Tax Fees 
No fees were billed during the years ended July 31, 2010 and 2009 for tax
compliance, tax advice, or tax planning services by WithumSmith+Brown, PC or
Bagell, Josephs, Levine & Company LLC that are reasonably related to the
performance of the audit or review of the Companys financial statements and
are not reported under the category Audit Fees described above.

All Other Fees
No fees were billed to the Company by WithumSmith+Brown, PC or Bagell, Joseph,
Levine & Company LLC during the years ended July 31, 2010 and 2009 for
services not described above.

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

24

---



PART IV

ITEM 15  EXHIBITS

|            |                        
|----------- | -----------------------
|Exhibit No. | Description of Exhibits

|      |                                                                                                                                                                                                                                           
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   | Certificate of
 Incorporation** -                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                           
|3.1.1 | Certificate of Amendment
 of Certificate of Incorporation - **                                                                                                                                                                            
|31.2  | Certificate of Amendment
 of Certificate of Incorporation of DSI Systems, Inc. **                                                                                                                                                         
|      |                                                                                                                                                                                                                                           
|3.1.3 | Certificate of Ownership
 and Merger with respect to the merger of Data Sciences (Maryland) into the
 Registrant and the change of Registrants name from Data Sciences
 Incorporated to DSI Systems, Inc.**                          
|      |                                                                                                                                                                                                                                           
|3.1.4 | Certificate of the
 Designation, Preferences and Relative, Participating, Option or Other Special
 Rights and Qualifications, Limitations or Restrictions thereof of the Series
 A Preferred Stock (par value $.50) of DSI Systems, Inc.**
|      |                                                                                                                                                                                                                                           
|3.1.5 | Certificate of the
 Designation, Preferences and Relative, Participating, Option or Other Special
 Rights and Qualifications, Limitations or Restrictions thereof of the Series
 B Preferred Stock (par value $.50) of DSI Systems, Inc.**
|3.1.6 | Certificate
 of Ownership and Merger of Conolog Corporation (New Jersey) by DSI Systems,
 Inc.*                                                                                                                                           
|3.1.7 | Certificate of Amendment of Certificate of Incorporation.*                                                                                                                                                                                
|3.2   | Amended By-Laws - incorporated by reference to Exhibit 3(h) to the
 Registrants Annual Report on Form 10-K for the fiscal year ended July 31,
 1981.*                                                                                    
|      |                                                                                                                                                                                                                                           
|4.1   | Specimen Certificate for
 shares of Common Stock*                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                           
|4.2   | Form of common Stock
 Purchase Warrant, dated January 19, 2006 (2)                                                                                                                                                                        
|      |                                                                                                                                                                                                                                           
|4.3   | Form of Convertible Note,
 dated January 19, 2006 (2)                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                           
|4.4   | Form of Common Stock
 Purchase Warrant, dated March 12, 2007 (3)                                                                                                                                                                          
|      |                                                                                                                                                                                                                                           
|4.5   | Form of Convertible Note,
 dated March 12, 2007 (3)                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                           
|4.6   | Form of Brokers Common
 Stock Purchase Warrant, dated March 12, 2007 (3)                                                                                                                                                                 

25

---



ITEM 15
 EXHIBITS

|            |                        
|----------- | -----------------------
|Exhibit No. | Description of Exhibits

|       |                                                                                                                                                                                   
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6.1  | Form of Brokers Common
 Stock Purchase Warrants, dated March 13, 2010 (3)                                                                                                        
|       |                                                                                                                                                                                   
|4.7    | Form of Notes as of August
 3, 2009 (7)                                                                                                                                           
|       |                                                                                                                                                                                   
|4.8    | Form of Class A Warrants (7)                                                                                                                                                      
|       |                                                                                                                                                                                   
|4.9    | Form of Class B Warrants (7)                                                                                                                                                      
|       |                                                                                                                                                                                   
|4.10   | Form of Class C Warrants (7)                                                                                                                                                      
|       |                                                                                                                                                                                   
|10.1   | Employment Agreement dated
 June 1, 1997 between Robert Benou and Conolog Corporation*                                                                                            
|       |                                                                                                                                                                                   
|10.1.1 | Amendment Employment Agreement dated February 18, 1999 between
     Robert Benou and Conolog Corporation*                                                                         
|       |                                                                                                                                                                                   
|10.2   | Employment Agreement dated
 June 1, 1997 between Marc Benou and Conolog Corporation (4)                                                                                           
|       |                                                                                                                                                                                   
|10.3   | Conolog Corporation 2002
 Stock Option Plan (5)                                                                                                                                   
|       |                                                                                                                                                                                   
|10.4   | Subscription Agreement
 dated as of January 19, 2006, among Conolog Corporation and the subscribers
 named therein (2)                                                            
|       |                                                                                                                                                                                   
|10.5   | Form of Selling Agent
 Agreement, dated as of July 29, 2009*                                                                                                                      
|       |                                                                                                                                                                                   
|10.6   | Subscription Agreement
 dated as of March 12, 2007 (3)                                                                                                                            
|       |                                                                                                                                                                                   
|10.7   | Form of Subscription
 Agreement between Conolog Corporation and the subscribers named therein dated
 as of August 3, 2009 (7)                                                     
|       |                                                                                                                                                                                   
|10.8   | Security Agreement dated
 as of August 3, 2009 (7)                                                                                                                                
|       |                                                                                                                                                                                   
|10.9   | Amendment No. 1 to Class C
 Common Stock Purchase Warrants, dated June 18, 2010 between Conolog
 Corporation and Alpha Capital Anstalt; Whalehaven Capital and Osher Partners
 (8)
|       |                                                                                                                                                                                   
|10.10  | Amendment No 1 to Secured
 Convertible Note, dated June 18, 2010, between Conolog Corporation and Alpha
 Capital Anstalt, Whalehaven Capital and Osher Partners (8)               
|       |                                                                                                                                                                                   
|10.11  | Amendment No 1 to
 Subscription Agreement, dated June 18, 2010, between Conolog Corporation and
 the Holders identified on the signature pages thereto (8)                        
|       |                                                                                                                                                                                   
|10.12  | 2009 Incentive Stock Pan
 (9)                                                                                                                                                     
|       |                                                                                                                                                                                   
|10.13  | Waiver dated November 27, 2010                                                                                                                                                    
|       |                                                                                                                                                                                   
|14.1   | Code of Ethics(6)                                                                                                                                                                 
|       |                                                                                                                                                                                   
|21.1   | List of Subsidiaries*                                                                                                                                                             
|       |                                                                                                                                                                                   
|23.1   | Incorporated by reference to the Registrants Registration Statements on Forms S-8 filed on May 25, 2007, July 8, 2008 and February 1, 2010.                                       
|       |                                                                                                                                                                                   
|31.1   | Rule 13a-14a/15d-14a
 Certification of Robert Benou (PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
 FINANCIAL OFFICER)*                                                               
|       |                                                                                                                                                                                   
|32.1   | Section 1350 Certification
 of Robert Benou (PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER)*                                                                        

26

---



ITEM 15
 EXHIBITS (continued)

|    |                                                                                                                                                            | 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|    |                                                                                                                                                           
|*   | Filed herewith                                                                                                                                            
|**  | Incorporated by reference
 to the Registrants Statement on Form SB-2 filed with the Securities and Exchange on February 18, 2005.                        
|(1) | Incorporated by reference
 to Registrants Registration Statement on Form S-1 (File No. 33-92424).                                                        
|(2) | Incorporated by reference
 to Registrants Report on Form 8-K filed on January 25, 2006.                                                                  
|(3) | Incorporated by reference
 to Registrants Report on Form 8-K filed on March 14, 2007                                                                     
|(4) | Incorporated by reference
 to the Registrants Registration Statement on Form S-1 (File No. 0-8174) as
 filed on September 12, 1997.                      
|(5) | Incorporated by reference
 to the Registrants Proxy Statement pursuant to Section 14(a) of the
 Securities Exchange Act of 1934 filed on June 25, 2003.  
|(6) | Incorporated by reference
 to Registrants Annual Report on Form 10-KSB for the fiscal year ended July
 31, 2003, filed with the SEC on November 14, 2003.
|(7) | Incorporated by reference
 to the Registrants Report on form 8-K filed on August 6, 2009                                                                  
|(8) | Incorporated by reference
 to the Registrants Report on form 8-K filed on July 14, 2010                                                                   
|(9) | Incorporated by reference to
 Schedule 14A filed on August 31, 2009.                                                                                      

27

---



SIGNATURES

In accordance with Section
13 or 15(d) of the 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

|                                                                                                                                                                                          |  |                                    |                     | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------------------- | 
|                                                                                                                                                                                          |  | By:                                | /s/ Robert S. Benou | 
|                                                                                                                                                                                          |  |                                    |                     | 
|November 30, 2010                                                                                                                                                                         |  | Chairman, Chief Executive
 Officer
|                                                                                                                                                                                          |  | Chief Financial Officer           
|                                                                                                                                                                                          |  |                                    |                    
|In accordance with the
 Exchange Act of 1934, this report has been signed below by the following
 persons, on behalf of the registrant and in the capacities and on the dates
 indicated.

|                  |  |                                                             | 
|----------------- |  | ----------------------------------------------------------- | 
|November 30, 2010 |  | /s/Robert S. Benou                                          | 
|                  |  |                                                             | 
|                  |  | Chairman, Chief Executive
 Officer and                     
|                  |  | Chief Financial Officer                                    
|                  |  |                                                             | 
|November 30, 2010 |  | /s/Marc R. Benou                                            | 
|                  |  |                                                             | 
|                  |  | President, Chief Operating
 Officer, Secretary and Director
|                  |  |                                                             | 
|November 30, 2010 |  | /s/Louis S. Massad                                          | 
|                  |  |                                                             | 
|                  |  | Director                                                   
|                  |  |                                                             | 
|November 30, 2010 |  | /s/Edward J. Rielly                                         | 
|                  |  |                                                             | 
|                  |  | Director                                                   
|                  |  |                                                             | 
|November 30, 2010 |  | /s/David M. Peison                                          | 
|                  |  |                                                             | 
|                  |  | Director                                                   

28

---



Form 10-K
Index to the Consolidated Financial Statements
Conolog Corporation and Subsidiaries
July 31, 2010 and 2009

|                                                                                                                   |  |            
|------------------------------------------------------------------------------------------------------------------ |  | -----------
|                                                                                                                   |  | Page       
|                                                                                                                   |  |            
|                                                                                                                   |  |            
|The following consolidated
 financial statements of the registrant are included in Item 8:                         |  |            
|                                                                                                                   |  |            
|Report of
 Independent Registered Public Accounting Firm                                                           |  | F-1        
|                                                                                                                   |  |            
|Consolidated Balance Sheets as of July 31,
 2010 and 2009, as restated                                             |  | F-2-F-3    
|                                                                                                                   |  |            
|Consolidated Statements of Operations for the
 years ended July 31, 2010 and 2009, as restated                     |  | F-4        
|                                                                                                                   |  |            
|Consolidated Statement of Changes in
 Stockholders Equity for the years ended July 31, 2010 and 2009, as restated |  | F-5        
|                                                                                                                   |  |            
|Consolidated Statements of Cash Flows for the
 years ended July 31, 2010 and 2009, as restated                     |  | F-6        
|                                                                                                                   |  |            
|Notes to Consolidated Financial Statements                                                                         |  | F-7
  F-45

---



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders ofConolog Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheets of Conolog Corporation and Subsidiaries as of July 31, 2010 and 2009, and the related consolidated statements of operations, stockholders equity and
cash flows for the years then ended. Conolog Corporations management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Conolog Corporation and Subsidiaries as of July 31, 2010 and
2009, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the consolidated financial statements, the Company has restated their July 31, 2009 financial statements to correct a misstatement.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 1 to the consolidated financial statements, the Company
has had recurring losses from operations of $3,532,645 and $1,620,877 and used cash from operations in the amounts of $1,636,745 and $1,264,121 for the years ended July 31, 2010 and 2009, respectively. At July 31, 2010 the Company
had cash equivalents of $713,005. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 1.  The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ WithumSmith+Brown, PCSomerville, New JerseyNovember 30, 2010

F-1

---



CONOLOG CORPORATION AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEETS 
JULY 31, 2010 AND 2009

|                                             |  |      |            |             |   |            |  
|-------------------------------------------- |  | ---- | ---------- | ----------- | - | ---------- | -
|                                             |  |      |            | As Restated |  
|                                             |  | 2010 |            | 2009        |  
|                                             |  |      |            |             |  
|ASSETS                                       |  |      |            |             |   |            |  
|Current
 Assets:                             |  |      |            |             |   |            |  
|Cash and cash equivalents                    |  | $    | 713,005    |             | $ | 27,358     |  
|Accounts receivable, net of allowance        |  |      | 67,603     |             |   | 245,980    |  
|Inventory, net of reserve for obsolescence   |  |      | 826,079    |             |   | 587,782    |  
|Prepaid expenses                             |  |      | 248,297    |             |   | 47,000     |  
|Note receivable, net of allowance            |  |      |           |             |   | 1,610      |  
|Other current assets                         |  |      | 5,000      |             |   | 5,000      |  
|                                             |  |      |            |             |   |            |  
|                                             |  |      |            |             |   |            |  
|Total Current Assets                         |  |      | 1,859,984  |             |   | 914,730    |  
|                                             |  |      |            |             |   |            |  
|                                             |  |      |            |             |   |            |  
|Property
 and equipment:                     |  |      |            |             |   |            |  
|Machinery and equipment                      |  |      | 1,357,053  |             |   | 1,357,053  |  
|Furniture and fixtures                       |  |      | 430,924    |             |   | 429,765    |  
|Automobiles                                  |  |      | 34,097     |             |   | 34,097     |  
|Computer software                            |  |      | 231,002    |             |   | 209,380    |  
|Leasehold improvements                       |  |      | 30,265     |             |   | 30,265     |  
|                                             |  |      |            |             |   |            |  
|Total property and
 equipment                |  |      | 2,083,341  |             |   | 2,060,560  |  
|Less: accumulated depreciation               |  |      | (1,987,284 | )           |   | (1,960,054 | )
|                                             |  |      |            |             |   |            |  
|Net Property and Equipment                   |  |      | 96,057     |             |   | 100,506    |  
|                                             |  |      |            |             |   |            |  
|                                             |  |      |            |             |   |            |  
|Other
 Assets:                               |  |      |            |             |   |            |  
|Deferred financing fees, net of amortization |  |      | 382,132    |             |   |           |  
|                                             |  |      |            |             |   |            |  
|                                             |  |      |            |             |   |            |  
|Total Other Assets                           |  |      | 382,132    |             |   |           |  
|                                             |  |      |            |             |   |            |  
|                                             |  |      |            |             |   |            |  
|TOTAL ASSETS                                 |  | $    | 2,338,173  |             | $ | 1,015,236  |  
|                                             |  |      |            |             |   |            |  

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

F-2

---



CONOLOG CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----------- | ---- | ----------- | ----------- | -
|                                                                                                                                                                                                 |  |      |             |      | As Restated |            
|                                                                                                                                                                                                 |  | 2010 |             | 2009 |            
|                                                                                                                                                                                                 |  |      |             |      |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                             |  |      |             |      |             |            
|Current
 Liabilities:                                                                                                                                                                            |  |      |             |      |             |             |  
|Accounts payable                                                                                                                                                                                 |  | $    | 150,880     |      | $           | 217,455     |  
|Accrued expenses                                                                                                                                                                                 |  |      | 201,000     |      |             | 64,132      |  
|Convertible debenture, net of discount, of $0 and $3,632 at July 31,
 2010 and 2009, respectively                                                                                                |  |      |            |      |             | 34,318      |  
|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|Total Current Liabilities                                                                                                                                                                        |  |      | 351,880     |      |             | 315,905     |  
|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|Non-Current Liabilities:                                                                                                                                                                         |  |      |             |      |             |             |  
|Convertible debenture, net of discount of $720,687 and $0 at July 31,
 2010 and 2009, respectively                                                                                               |  |      | 279,313     |      |             |            |  
|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|Total Liabilities                                                                                                                                                                                |  |      | 631,193     |      |             | 315,905     |  
|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|Commitments and Contingencies                                                                                                                                                                    |  |      |             |      |             |             |  
|Stockholders Equity:                                                                                                                                                                            |  |      |             |      |             |             |  
|Preferred stock, par value $.50; Series A; 4% cumulative; 500,000
 shares authorized; 155,000 shares issued and outstanding at July 31, 2010 and
 2009, respectively.                            |  |      | 77,500      |      |             | 77,500      |  
|Preferred stock, par value $.50; Series B; $.90 cumulative; 500,000
 shares authorized; 1,197 shares issued and outstanding at July 31, 2010 and
 2009, respectively.                            |  |      | 597         |      |             | 597         |  
|Common stock, par value $0.01; 30,000,000 shares authorized; 6,967,881
 and 1,842,485 shares issued and outstanding at July 31, 2010 and 2009
 respectively including 2 shares held in treasury. |  |      | 69,679      |      |             | 18,425      |  
|Contributed capital                                                                                                                                                                              |  |      | 78,088,878  |      |             | 52,221,727  |  
|Accumulated deficit                                                                                                                                                                              |  |      | (76,397,940 | )    |             | (51,487,184 | )
|Less: Treasury shares at cost                                                                                                                                                                    |  |      | (131,734    | )    |             | (131,734    | )
|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|Total Stockholders Equity                                                                                                                                                                       |  |      | 1,706,980   |      |             | 699,331     |  
|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|                                                                                                                                                                                                 |  |      |             |      |             |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                       |  | $    | 2,338,173   |      | $           | 1,015,236   |  
|                                                                                                                                                                                                 |  |      |             |      |             |             |  

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

F-3

---



CONOLOG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

|                                                            |  |      |             |      |             |            |  
|----------------------------------------------------------- |  | ---- | ----------- | ---- | ----------- | ---------- | -
|                                                            |  |      |             |      | As Restated |           
|                                                            |  | 2010 |             | 2009
|                                                            |  |      |             |      |            
|OPERATING
 REVENUES                                         |  |      |             |      |             |            |  
|Product revenue                                             |  | $    | 1,178,673   |      | $           | 1,485,298  |  
|                                                            |  |      |             |      |             |            |  
|Cost of
 product revenue                                    |  |      |             |      |             |            |  
|Materials and labor used in
 production                     |  |      | 618,990     |      |             | 618,325    |  
|Inventory obsolesence                                       |  |      | 75,564      |      |             | 169,712    |  
|                                                            |  |      |             |      |             |            |  
|Total Cost of product revenue                               |  |      | 694,554     |      |             | 788,037    |  
|                                                            |  |      |             |      |             |            |  
|Gross Profit                                                |  |      | 484,119     |      |             | 697,261    |  
|                                                            |  |      |             |      |             |            |  
|Selling,
 general and administrative expenses               |  |      |             |      |             |            |  
|General and administrative                                  |  |      | 3,759,490   |      |             | 1,779,243  |  
|Research and development                                    |  |      | 139,951     |      |             | 368,331    |  
|Selling expenses                                            |  |      | 117,323     |      |             | 170,564    |  
|                                                            |  |      |             |      |             |            |  
|Total selling, general and
 administrative expenses         |  |      | 4,016,764   |      |             | 2,318,138  |  
|                                                            |  |      |             |      |             |            |  
|Loss from Operations                                        |  |      | (3,532,645  | )    |             | (1,620,877 | )
|                                                            |  |      |             |      |             |            |  
|OTHER
 INCOME (EXPENSES)                                    |  |      |             |      |             |            |  
|Loss on derivative financial instruments                    |  |      | (18,958,801 | )    |             |           |  
|Beneficial
     conversion feature                          |  |      | (457,692    | )    |             |           |  
|Incremental consideration for modification of debt warrants |  |      | (107,863    | )    |             |           |  
|Interest expense                                            |  |      | (44,546     | )    |             | (102,379   | )
|Interest income                                             |  |      | 3,630       |      |             | 16,265     |  
|Induced conversion cost                                     |  |      | (150,201    | )    |             | (621,880   | )
|Bad debt for note receivable                                |  |      |            |      |             | (83,101    | )
|Amortization of debt discount                               |  |      | (1,279,313  | )    |             | (123,274   | )
|Amortization of deferred financing fees                     |  |      | (520,656    | )    |             | (128,108   | )
|                                                            |  |      |             |      |             |            |  
|Total Other Income (Expense)                                |  |      | (21,515,442 | )    |             | (1,042,477 | )
|                                                            |  |      |             |      |             |            |  
|Net Loss
 before income tax benefit                         |  |      | (25,048,087 | )    |             | (2,663,354 | )
|Income tax benefit                                          |  |      | 137,331     |      |             | 373,939    |  
|                                                            |  |      |             |      |             |            |  
|NET LOSS
 APPLICABLE TO COMMON SHARES                       |  |      | (24,910,756 | )    |             | (2,289,415 | )
|                                                            |  |      |             |      |             |            |  
|NET LOSS
 PER BASIC AND DILUTED COMMON SHARE                |  | $    | (5.36       | )    | $           | (2.36      | )
|                                                            |  |      |             |      |             |            |  
|WEIGHTED
 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING       |  |      | 4,650,113   |      |             | 968,723    | *
|                                                            |  |      |             |      |             |            |  

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

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

F-4

---



CONOLOG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |   |  |   |          |   |   |             |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | ----------------------- | ------ | ------ | ----- | ------------------ | - | ------------------ |  | -------------- | - | -------------------------- | ------ | ------- | - | ---------- | - | - | ----------- | - | - |  | - | -------- | - | - | ----------- | -
|                                                                                                          |  | Series APreferred Stock |  | Series BPreferred Stock |        |        |       | ContributedCapital |   | AccumulatedDeficit |  | Treasury Stock |   | Total
 StockholdersEquity |       
|                                                                                                          |  |                         |  | Common Stock            |        |        |       |                    |  
|                                                                                                          |  | Shares                  |  | Amount                  |        | Shares |       | Amount             |   | Shares*            |  | Amount         |   |                            |        | Shares* |   | Amount     |   |  
|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |  
|Balance at July 31, 2008, as restated                                                                     |  | 155,000                 |  | $                       | 77,500 |        | 1,197 |                    | $ | 597                |  | 557,494        |   | $                          | 5,574  |         | $ | 50,604,831 |   | $ | (49,197,769 | ) | 2 |  | $ | (131,734 | ) | $ | 1,358,999   |  
|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |   |  |   |          |   |   |             |  
|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |   |  |   |          |   |   |             |  
|Conversion of convertible debenture                                                                       |  |                        |  |                         |       |        |      |                    |   |                   |  | 636,570        |   |                            | 6,366  |         |   | 907,443    |   |   |            |   |  |  |   |         |   |   | 913,809     |  
|Interest paid with issuance of common stock                                                               |  |                        |  |                         |       |        |      |                    |   |                   |  | 51,526         |   |                            | 515    |         |   | 93,543     |   |   |            |   |  |  |   |         |   |   | 94,058      |  
|Induced conversion costs associated with convertible debt                                                 |  |                        |  |                         |       |        |      |                    |   |                   |  |               |   |                            |       |         |   | 621,880    |   |   |            |   |  |  |   |         |   |   | 621,880     |  
|Reversal of previously issued shares issued for services to be
 provided                                  |  |                        |  |                         |       |        |      |                    |   |                   |  | (5,000         | ) |                            | (50    | )       |   | (19,450    | ) |   |            |   |  |  |   |         |   |   | (19,500     | )
|Reversal of previously issued common shares issued to, officers,
 directors and employees for fiscal 2008 |  |                        |  |                         |       |        |      |                    |   |                   |  | (144,000       | ) |                            | (1,440 | )       |   | (1,372,210 | ) |   |            |   |  |  |   |         |   |   | (1,373,650  | )
|Shares issued for services to be provided                                                                 |  |                        |  |                         |       |        |      |                    |   |                   |  | 25,500         |   |                            | 255    |         |   | 47,430     |   |   |            |   |  |  |   |         |   |   | 47,685      |  
|Common shares issued to officers, directors and employees for fiscal
 2009                                |  |                        |  |                         |       |        |      |                    |   |                   |  | 720,395        |   |                            | 7,205  |         |   | 1,338,260  |   |   |            |   |  |  |   |         |   |   | 1,345,465   |  
|Net loss for the year                                                                                     |  |                        |  |                         |       |        |      |                    |   |                   |  |               |   |                            |       |         |   |           |   |   | (2,289,415  | ) |  |  |   |         |   |   | (2,289,415  | )
|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |   |  |   |          |   |   |             |  
|Balance at July 31, 2009, as restated                                                                     |  | 155,000                 |  | $                       | 77,500 |        | 1,197 |                    | $ | 597                |  | 1,842,485      |   | $                          | 18,425 |         | $ | 52,221,727 |   | $ | (51,487,184 | ) | 2 |  | $ | (131,734 | ) | $ | 699,331     |  
|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |   |  |   |          |   |   |             |  
|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |   |  |   |          |   |   |             |  
|Conversion of convertible debentures                                                                      |  |                        |  |                         |       |        |      |                    |   |                   |  | 1,328,645      |   |                            | 13,287 |         |   | 1,024,662  |   |   |            |   |  |  |   |         |   |   | 1,037,949   |  
|Exercise of warrants                                                                                      |  |                        |  |                         |       |        |      |                    |   |                   |  | 2,746,192      |   |                            | 27,462 |         |   | 607,608    |   |   |            |   |  |  |   |         |   |   | 635,070     |  
|Shares issued for services to be provided                                                                 |  |                        |  |                         |       |        |      |                    |   |                   |  | 265,000        |   |                            | 2,650  |         |   | 506,150    |   |   |            |   |  |  |   |         |   |   | 508,800     |  
|Induced conversion costs associated with convertible debt                                                 |  |                        |  |                         |       |        |      |                    |   |                   |  |               |   |                            |       |         |   | 150,201    |   |   |            |   |  |  |   |         |   |   | 150,201     |  
|Interest paid with issuance of common stock                                                               |  |                        |  |                         |       |        |      |                    |   |                   |  | 50,559         |   |                            | 505    |         |   | 39,041     |   |   |            |   |  |  |   |         |   |   | 39,546      |  
|Reclassification of derivative liability                                                                  |  |                        |  |                         |       |        |      |                    |   |                   |  |               |   |                            |       |         |   | 21,570,084 |   |   |            |   |  |  |   |         |   |   | 21,570,084  |  
|Incremental consideration for reduction of exercise price of Series C
 warrants                           |  |                        |  |                         |       |        |      |                    |   |                   |  |               |   |                            |       |         |   | 107,863    |   |   |            |   |  |  |   |         |   |   | 107,863     |  
|Beneficial converion feature on February 2010 debentures in
 consideration of modifying terms             |  |                        |  |                         |       |        |      |                    |   |                   |  |               |   |                            |       |         |   | 457,692    |   |   |            |   |  |  |   |         |   |   | 457,692     |  
|Common shares issued to officers, directors and employees                                                 |  |                        |  |                         |       |        |      |                    |   |                   |  | 735,000        |   |                            | 7,350  |         |   | 1,403,850  |   |   |            |   |  |  |   |         |   |   | 1,411,200   |  
|Net loss for the year                                                                                     |  |                        |  |                         |       |        |      |                    |   |                   |  |               |   |                            |       |         |   |           |   |   | (24,910,756 | ) |  |  |   |         |   |   | (24,910,756 | )
|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |   |  |   |          |   |   |             |  
|Balance at July 31, 2010                                                                                  |  | 155,000                 |  | $                       | 77,500 |        | 1,197 |                    | $ | 597                |  | 6,967,881      |   | $                          | 69,679 |         | $ | 78,088,878 |   | $ | (76,397,940 | ) | 2 |  | $ | (131,734 | ) | $ | 1,706,980   |  
|                                                                                                          |  |                         |  |                         |        |        |       |                    |   |                    |  |                |   |                            |        |         |   |            |   |   |             |   |   |  |   |          |   |   |             |  

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

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

F-5

---



CONOLOG CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

|                                                                        |  |      |             |                   |   |            |  
|----------------------------------------------------------------------- |  | ---- | ----------- | ----------------- | - | ---------- | -
|                                                                        |  | 2010 |             | As Restated
 2009 |  
|                                                                        |  |      |             |                   |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                    |  |      |             |                   |   |            |  
|Net loss                                                                |  | $    | (24,910,756 | )                 | $ | (2,289,415 | )
|Adjustments to reconcile net loss to net
 cash used in operations:      |  |      |             |                   |   |            |  
|Depreciation                                                            |  |      | 27,230      |                   |   | 23,374     |  
|Provision for uncollectible note receivable                             |  |      |            |                   |   | 83,101     |  
|Reserve of obsolete inventory parts                                     |  |      | (14,000     | )                 |   | (4,000     | )
|Write down of obsolete inventory parts                                  |  |      | 89,564      |                   |   | 173,712    |  
|Amortization of deferred financing fees                                 |  |      | 520,656     |                   |   | 128,108    |  
|Common stock issued to officers, directors
 and employees               |  |      | 1,411,200   |                   |   |           |  
|Amortization of common stock issued for
 services                       |  |      | 428,800     |                   |   | 47,685     |  
|Induced conversion costs associated with
 convertible debt and warrants |  |      | 150,201     |                   |   | 621,880    |  
|Amortization of discount of convertible
 debentures                     |  |      | 1,279,313   |                   |   | 123,274    |  
|Beneficial conversion feature                                           |  |      | 457,692     |                   |   |           |  
|Incremental consideration for modification
 of warrants                 |  |      | 107,863     |                   |   |           |  
|Loss on derivative financial instruments                                |  |      | 18,958,801  |                   |   |           |  
|Changes in assets and liabilities                                       |  |      |             |                   |   |            |  
|(Increase) decrease in accounts receivable                              |  |      | 178,377     |                   |   | 114,866    |  
|(Increase) in prepaid expenses                                          |  |      | (117,666    | )                 |   | (63,364    | )
|(Increase) in inventories                                               |  |      | (313,861    | )                 |   | (366,429   | )
|(Increase) in other current assets                                      |  |      |            |                   |   | (5,000     | )
|Increase (decrease) in accounts payable                                 |  |      | (66,575     | )                 |   | 51,854     |  
|Increase in accrued expenses                                            |  |      | 176,416     |                   |   | 96,233     |  
|                                                                        |  |      |             |                   |   |            |  
|Net cash used in operations                                             |  |      | (1,636,745  | )                 |   | (1,264,121 | )
|                                                                        |  |      |             |                   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                    |  |      |             |                   |   |            |  
|Purchase of property and equipment                                      |  |      | (22,781     | )                 |   |           |  
|Redemption of certificates of deposit                                   |  |      |            |                   |   | 600,182    |  
|                                                                        |  |      |             |                   |   |            |  
|Net cash (used in) provided by investing
 activities                    |  |      | (22,781     | )                 |   | 600,182    |  
|                                                                        |  |      |             |                   |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                    |  |      |             |                   |   |            |  
|Proceeds from issuance of convertible
 debentures                       |  |      | 2,000,000   |                   |   |           |  
|Proceeds from exercise of warrants                                      |  |      | 635,070     |                   |   |           |  
|Payments for deferred loan costs                                        |  |      | (291,507    | )                 |   |           |  
|Proceeds from note receivable                                           |  |      | 1,610       |                   |   | 10,650     |  
|                                                                        |  |      |             |                   |   |            |  
|Net cash provided by financing activities                               |  |      | 2,345,173   |                   |   | 10,650     |  
|                                                                        |  |      |             |                   |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                   |  |      | 685,647     |                   |   | (653,289   | )
|CASH AND CASH EQUIVALENTS - BEGINNING OF
 YEAR                          |  |      | 27,358      |                   |   | 680,647    |  
|                                                                        |  |      |             |                   |   |            |  
|CASH AND CASH EQUIVALENTS - END OF YEAR                                 |  |      | 713,005     |                   |   | 27,358     |  
|                                                                        |  |      |             |                   |   |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:                      |  |      |             |                   |   |            |  
|CASH PAID DURING THE YEAR FOR:                                          |  |      |             |                   |   |            |  
|Interest expense                                                        |  | $    |            |                   | $ | 8,321      |  
|                                                                        |  |      |             |                   |   |            |  
|Income Taxes                                                            |  |      | 11,099      |                   |   | 520        |  
|                                                                        |  |      |             |                   |   |            |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH
 ACTIVITIES:                         |  |      |             |                   |   |            |  
|Debt converted to equity                                                |  | $    | 1,037,949   |                   | $ | 913,809    |  
|                                                                        |  |      |             |                   |   |            |  
|Common stock issued for serices to be
 provided                         |  | $    | 508,800     |                   | $ | 47,685     |  
|                                                                        |  |      |             |                   |   |            |  
|Common stock issued for accrued interest                                |  | $    | 39,546      |                   | $ | 94,058     |  
|                                                                        |  |      |             |                   |   |            |  
|Warrants granted to broker for deferred
 financing fees                 |  | $    | 611,281     |                   | $ |           |  
|                                                                        |  |      |             |                   |   |            |  

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

F-6

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|NOTE 1-
 NATURE OF ORGANIZATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Conolog
 Corporation (the Company) is in the business of design, manufacturing and
 distribution of small electronic and electromagnetic components and
 subassemblies for use in telephone, radio and microwave transmissions and
 reception and other communication areas. The Companys products are used for
 transceiving various quantities, data and protective relaying functions in
 industrial, utility and other markets. The Companys customers include
 primarily industrial customers, which include power companies 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 provide
 short-term and long-term qualified engineering and technical staff, as well
 as human resource consulting to various industries. In March 2004 the Company
 ceased operating its staffing business. The assets of the Companys
 wholly-owned subsidiary, Nologoc, Inc. trading as Atlas Design, were sold to
 the Companys vice-president of operations of Atlas Design.                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Going
 Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|The
 accompanying 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 ($3,532,645) and ($1,620,877) and used
 cash from operations in the amounts of ($1,636,745) and ($1,264,121) for the
 years ended July 31, 2010 and 2009, respectively. At July 31, 2010, the
 Company had cash and cash equivalents of $713,005. On June 23, 2010, an event
 of default occurred on our outstanding convertible Debentures (See Notes 9
 and 15). Although, the Company received a waiver from the note holders on
 November 29, 2010 there can be no assurance that we will not suffer further
 events of default. These factors raise substantial doubt as to the Companys
 ability to continue as a going concern. The accompanying 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. 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
 consolidated financial statements include the accounts of Conolog Corporation
 and its wholly owned subsidiaries. All significant intercompany balances and
 transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Cash and
 Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|For
 the purpose of the statements of cash flows, cash equivalents include time
 deposits, certificates of deposit and all highly liquid debt instruments with
 original maturities of 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 during the
 year, 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 July 31, 2010 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. The
 allowance for doubtful accounts at July 31, 2010 and 2009 was $1,000 and
 $1,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The
 Company has a concentration risk in trade accounts receivable with
 significant sales to the government and local agencies. Three customers
 accounted for approximately 48%, 30% and 14% of accounts receivable as of
 July 31, 2010. Two customers accounted for approximately 71% and 12% of
 accounts receivable as of July 31, 2009. The credit evaluation process has
 mitigated the credit risk, such losses have been minimal, and within
 management expectations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-7

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|NOTE 2-
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|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 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 a zero. Ongoing the Company evaluates the inventory parts based on
 their age and usage over a 36 month period to determine inventory
 obsolescence and reserve adjustments.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|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 and seven years.
 Depreciation was $27,230 and $23,374 for the years ended July 31, 2010 and
 2009, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Deferred
 Financing Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|The
 Company follows authoritative guidance for accounting for financing costs as
 it relates to convertible debt issuance cost. These costs are deferred and
 amortized over the term of the debt period or until redemption of the
 convertible Debentures. As of July 31, 2010 and 2009, $382,132 and $0,
 respectively of deferred financing costs remained to be amortized.
 Amortization of deferred financing costs amounted to $520,656 and $128,108
 for years ended July 31, 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Derivative
 Liability                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Derivative
 liabilities consist of certain common stock warrants, and conversion features
 embedded in our convertible Debenture notes. These financial instruments are
 recorded in the balance sheet at fair value, determined using the Black
 Scholes option pricing model, as liabilities. Changes in fair value are
 recognized in the statement of operations in the period of change.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Effective
 August 1, 2009, the Company adopted the provisions of the Financial Accounting
 Standards Board Accounting Codification Topic 815-40-15-5, Evaluating
 Whether an Instrument Involving a Contingency is Considered Indexed to an
 Entitys Own Stock (FASB ASC 815-40-15-5). FASB ASC 815-40-15-5 provides
 guidance in assessing whether an equity-linked financial instrument (or
 embedded feature) is indexed to an entitys own stock for purposes of
 determining whether the equity-linked instrument (or embedded feature)
 qualifies as a derivative instrument. We have determined that our convertible
 Debentures and certain of our warrants issued after the adoption of FASB ASC
 815-40-15-5 contain features that are not indexed to our own stock and
 therefore, were classified as derivative instruments. Upon adoption of FASB
 ASC 815-40-15-5 we did not record a cumulative effect of a change in
 accounting principle as it did not apply to any outstanding convertible
 Debentures or warrants at that time.                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|On
 June 18, 2010, the Companys common stock warrants and convertible notes were
 amended. As a result of these amendments we determined that the equity-linked
 instruments (or embedded features) are indexed to our Companys stock within
 the meaning of FASB ASC 815-40-15-5 and no longer qualify as a derivative
 instrument.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-8

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|NOTE 2-
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Debt
 Discount                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|The
 Company follows the authoritative guidance for accounting for debt discount
 and valuation of detachable warrants the Company recognized the value of
 detachable warrants issued in conjunction with issuance of the secured
 convertible Debenture notes. The Company valued the warrants using the
 Black-Scholes pricing model. The Company recorded the warrant relative fair
 value as an increase to additional paid-in capital and discount against the
 related debt. The discount attributed to the value of the warrants is
 amortized over the term of the underlying debt using the effective interest
 method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Research
 and Development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Research
 and Development costs are expensed as incurred. Research and Development
 costs were $139,951 and $368,331 for the years ended July 31, 2010 and 2009,
 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Revenue
 Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Revenue
 is recorded in accordance with the guidance of the SECs Staff Accounting
 Bulletin (SAB) No. 104, which supersedes SAB No. 101. Revenue from product
 sales are recognized at the time of shipment (when title and risks and
 rewards of ownership have passed) upon fulfillment of acceptance terms;
 products are not sold on a conditional basis. Therefore, when delivery has
 occurred the sale is complete as long as the collection of the resulting
 receivable is probable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|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.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Advertising
 / Public Relations Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Advertising/Public
 Relations costs are charged to operations when incurred. These expenses were
 $72,329 and $37,521 for the years ended July 31, 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Shipping
 and Handling Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Shipping
 and handling costs are expensed as incurred and amounted to $37,416 and
 $30,583 for the years ended July 31, 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-9

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                     
|NOTE 2-
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                     
|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 equivalents, accounts
 receivable, other current assets, accounts payable, accrued expenses,
 convertible Debentures as well as derivative liabilities. All these items,
 except the derivative liabilities 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                     
|The
 Company has determined its financial instruments accounted for as derivative
 liabilities to be a Level 2 fair value measurement and has used the
 Black-Scholes pricing model to calculate the fair value. See Note 10,
 Derivative Liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                     
|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. See note 6, Income Taxes.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                     
|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. During fiscal years
 ended July 31, 2010 and 2009, the Company entered into agreements to sell its
 unused NOLs. Recognition of this asset and income have
 been in accordance with the guidance of SAB Topic 13 and are 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                     
|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 year. The preferred dividends are not reflected in arriving at the net
 loss as they are not material and would have no effect on earnings per share
 available to common shareholders. The number of weighted average shares used
 in the computation were 4,650,113 and 968,723 (adjusted for a 1:5 reverse
 stock split) for 2010 and 2009 respectively. The effect of assuming the
 exchange of Series A Preferred Stock and Series B Preferred Stock in 2010 and
 2009 would be anti-dilutive. Anti-dilutive shares are not included in the calculation
 of Earnings per Share. As the Company had a loss, the impact of the assumed
 exercise of outstanding warrants and convertible debt at July 31, 2010 and 2009
 would be anti-dilutive. Potentially dilutive securities at July 31, 2010
 consist of 2,939,036 common shares from outstanding warrants, 1,666,667
 common shares from convertible debt and 155,006 common shares from preferred
 stock.                                                                                                                                                                                                                                                                                                                                                                                                    

F-10

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|                                                                                
|--------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                      
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                      
|                                                                                
|NOTE 2-
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)                 
|                                                                                
|The
 following is a reconciliation of the computation for basic and diluted EPS:

|                                                                 |  |                |             |                 |   |            |  
|---------------------------------------------------------------- |  | -------------- | ----------- | --------------- | - | ---------- | -
|                                                                 |  |                |             | As
 Restated    |  
|                                                                 |  |                |             |                 |  
|                                                                 |  | July 31,
 2010 |             | July 31,
 2009* |  
|                                                                 |  |                |             |                 |  
|Net Loss                                                         |  | $              | (24,910,756 | )               | $ | (2,289,415 | )
|                                                                 |  |                |             |                 |   |            |  
|Weighted-average common shares outstanding (Basic)               |  |                | 4,650,113   |                 |   | 968,723    |  
|Weighted-average common stock equivalents:                       |  |                |             |                 |   |            |  
|Warrants                                                         |  |                |            |                 |   |           |  
|Series A Preferred Shares                                        |  |                |            |                 |   |           |  
|Series B Preferred Shares                                        |  |                |            |                 |   |           |  
|                                                                 |  |                |             |                 |   |            |  
|                                                                 |  |                |             |                 |   |            |  
|Weighted-average common shares outstanding (Diluted)             |  |                | 4,650,113   |                 |   | 968,723    |  
|                                                                 |  |                |             |                 |   |            |  
|                                                                 |  |                |             |                 |   |            |  
|*Represents retroactive
 application of 1:5 reverse stock split.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 ae 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.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Effects of
 Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Recently
 Adopted Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|In
 May 2008, the FASB issued guidance related to accounting for convertible debt
 instruments that may be settled in cash upon conversion (including partial
 cash settlements). This guidance requires a portion of this type of
 convertible debt to be recorded as equity and to record interest expense on
 the debt portion at a rate that would have been charged on nonconvertible
 debt with the same terms. This guidance is effective for the Companys fiscal
 year beginning August 1, 2009. The adoption of this guidance did not have a
 significant impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|In
 June 2008, the FASB issued guidance related to determining whether
 instruments granted in share-based payment transactions are participating
 securities. Securities participating in dividends with common stock according
 to a formula are participating securities. This guidance determined that
 unvested shares of restricted stock and stock units with nonforfeitable
 rights to dividends are participating securities. Participating securities
 require the two-class method to be used to calculate basic earnings per
 share. This method lowers basic earnings per common share. This guidance is
 effective for the Companys fiscal year beginning August 1, 2009. The
 adoption of this guidance did not have a significant impact on the Companys
 consolidated financial statements.                                                                                                                                                                                                                                                                                                                                  

F-11

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|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|Recently
 Adopted Accounting Pronouncements (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|In
 June 2008, the FASB reached a consensus regarding the determination of
 whether an instrument (or an embedded feature) is indexed to an entitys own
 stock, which is the first part of the scope exception related to accounting
 for derivative instruments and hedging activities. This guidance is effective
 for the Companys fiscal year beginning August 1, 2009. The Company
 determined that the conversion features embedded in its convertible
 Debentures and certain of its warrants with price protection provisions are
 not considered to be indexed to the Companys own stock, therefore, they do
 not meet the scope exception and thus should be accounted for as a liability.
 During the fiscal year ended July 31, 2010, the adoption of this guidance
 resulted in a loss on derivative financial instruments in the amount of
 $18,958,801.                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|In
 June 2009, the FASB issued guidance which stipulates the FASB Accounting
 Standards Codification is the source of authoritative U.S. GAAP recognized by
 the FASB to be applied by nongovernmental entities. This guidance is
 effective for the Companys fiscal year beginning August 1, 2009. The
 adoption of this guidance did not have a significant impact on the Companys
 consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|Recently
 Issued Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|In
 October 2009, the FASB issued guidance on multiple deliverable revenue arrangements
 which eliminates the residual method of allocation and requires the relative
 selling price method when allocating deliverables of a multiple-deliverable
 revenue arrangement. The determination of the selling price for each
 deliverable requires the use of a hierarchy designed to maximize the use of
 available objective evidence including, vendor specific objective evidence,
 third party evidence of selling price, or estimated selling price. This
 guidance is effective prospectively for revenue arrangements entered into or
 materially modified in fiscal years beginning on or after June 15, 2010, and
 must be adopted in the same period using the same transition method. If
 adoption is elected in a period other than the beginning of a fiscal year,
 the amendments in these standards must be applied retrospectively to the
 beginning of the fiscal year. Full retrospective application of these
 amendments to prior fiscal years is optional. Early adoption of these
 standards may be elected. The Company is currently evaluating the impact of
 this new accounting guidance on its consolidated financial statements.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|In
 January 2010, the FASB issued additional guidance on fair value measurements
 and disclosures which requires reporting entities to provide information
 about movements of assets among Level 1 and 2 of the three-tier fair value
 hierarchy established by the existing guidance. The guidance is effective for
 any fiscal year that begins after December 15, 2010, and it should be used
 for quarterly and annual filings. The Company is currently evaluating the
 impact of this new accounting guidance on its consolidated financial
 statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|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 financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|NOTE 3 
 RESTATEMENT TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|In
 a Form 8-K dated June 10, 2010, Conolog Corporation concluded that our
 consolidated financial statements for the year ended July 31, 2009 and the
 quarters ended April 30, 2010, January 31, 2010 and October 31, 2009 would be
 restated and should no longer be relied upon.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|The
 following is a summary of the adjustments to our previously issued
 consolidated balance sheet as of July 31, 2009 and consolidated statement of
 operations for the year then ended:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                           
|1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | The
 July 31, 2009 ending inventory balance was reduced in the amount of $348,229,
 as a result of inventory not being valued using appropriate GAAP. This reduction
 was expensed to cost of goods sold. In addition, the Company established a
 reserve for inventory in the amount of $88,000, in accordance with GAAP.
|2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Computer
 software previously capitalized as an asset in the amount of $311,243 was
 appropriately expensed to research and development expense. The accumulated
 depreciation associated with the inappropriate capitalization was also
 corrected in the amount of $15,045.                                             
|3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A
 reserve was established for a note receivable in the amount of $83,101 whose
 collectability was not reasonably assured. The amount of $83,101 was expensed
 to the bad debt for note receivable on the consolidated statements of
 operations.                                                                        

F-12

---



|                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                            
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                      
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                      
|                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 3 
 RESTATEMENT TO PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)                                                                                                                     
|                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.                                                                                                                                                                                               | Prepaid
 expenses were overstated. Consulting fees in the amount of $23,843 were
 expensed and are included in selling, general and administrative expense line
 item on the consolidated statements of operations.                                                                                                                                                                                                             
|5.                                                                                                                                                                                               | The
 Company recorded a payroll tax accrual in the amount of $38,000. This
 adjustment has increased general, selling and administrative expenses in the
 amount of $38,000 with a corresponding increase in the accrual expenses on
 the consolidated balance sheet.                                                                                                                                                           
|6.                                                                                                                                                                                               | The
 previously reported induced conversion costs were inaccurately calculated. An
 additional expense of $69,510 was recorded in the induced conversion cost
 line item of the consolidated statement of operations with a corresponding
 increase to additional paid in capital.                                                                                                                                              
|7.                                                                                                                                                                                               | The
 Company reduced amortization of deferred financing fees in the amount of
 $158,476 with a corresponding increase to deferred financing fees on the
 consolidated balance sheet.                                                                                                                                                                                                                                            
|8.                                                                                                                                                                                               | The
 Company inappropriately accounted for stock based compensation expense. Stock
 based compensation of $751,242 and consulting fees of $28,185 were both
 reduced and are included in general, selling and administrative expense of
 the consolidated statement of operations. Additional paid in capital was
 reduced by $68,623 both of which are on the consolidated balance sheet.                                      
|9.                                                                                                                                                                                               | Adjusted
 the net loss per basic and diluted common shares from ($2.43) loss per share
 to ($2.36) loss per share based upon the restated net loss.                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|The following is a summary
 of the adjustments that have affected the opening accumulated deficit as of
 July 31, 2008:                                                                         
|                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|1.                                                                                                                                                                                               | Deferred
 compensation (contra-equity) was reclassified to accumulated deficit in the
 amount of $604,110 to comply with ASC No. 718 Compensation  Stock Compensation.                                                                                                                                                                                                                                                         
|2.                                                                                                                                                                                               | The
 inventory balance was restated because it was determined that the inventory
 was not appropriately valued using general accepted accounting principles
 (GAAP). The July 31, 2008 ending inventory balance was reduced by $459,442,
 and the accumulated deficit was increased by the same amount. In addition,
 the Company established a reserve for obsolete inventory in the amount
 $92,000 in accordance with GAAP.
|3.                                                                                                                                                                                               | A
 reduction to other receivable was recorded due to an error in recognizing a
 receivable for the sale of the Companys N.J. State Tax Net Operating Losses.
 The other receivable was reduced by $568,529 and accumulated deficit was also
 appropriately adjusted. A receivable should not have been recognized until
 cash was received as per SAB Topic 13.                                                                
|4.                                                                                                                                                                                               | An
 incremental increase in compensation expense was recorded to adjust the fair
 value of the stock granted to the appropriate measurement date. The amount of
 $1,112,000 was recognized as in increase in accumulated deficit with a
 corresponding increase to additional paid in capital.                                                                                                                                  
|5.                                                                                                                                                                                               | The
 previously reported induced conversion costs were inaccurately calculated.
 Additional paid in capital was reduced by $533,165 with the corresponding
 reduction in accumulated deficit.                                                                                                                                                                                                                                   
|6.                                                                                                                                                                                               | The
 Company recorded additional amortization of deferred financing fees.
 Accumulated deficit was increased by $166,922 with a corresponding reduction
 to deferred financing fees on the consolidated balance sheet.                                                                                                                                                                                                          
|                                                                                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Presented
 on the following two pages are the previously reported and restated July 31,
 2009 consolidated balance sheet and statements of operations and consolidated
 statement of cash flows.

F-13

---



CONOLOG CORPORATION AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

|                                                                                                                                                            |  |                            |             |                    |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | ------------------ | - | ----------- | -
|NOTE 3 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)                                                                                  |  |                            |             |                   
|                                                                                                                                                            |  |                            |             |                   
|Consolidated Balance Sheet - July 31,
 2009                                                                                                                 |  |                            |             |                   
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|                                                                                                                                                            |  | Previously
 Reported
 2009 |             | As
 Restated
 2009 |  
|                                                                                                                                                            |  |                            |             |                    |  
|ASSETS                                                                                                                                                      |  |                            |             |                    |   |             |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Current Assets:                                                                                                                                             |  |                            |             |                    |   |             |  
|Cash and cash equivalents                                                                                                                                   |  | $                          | 27,358      |                    | $ | 27,358      |  
|Accounts receivable, net of allowance                                                                                                                       |  |                            | 245,980     |                    |   | 245,980     |  
|Inventory, net of reserve for obsolescence                                                                                                                  |  |                            | 1,395,452   |                    |   | 587,782     |  
|Prepaid expenses                                                                                                                                            |  |                            | 70,843      |                    |   | 47,000      |  
|Current portion of note receivable                                                                                                                          |  |                            | 14,864      |                    |   | 1,610       |  
|Other current assets                                                                                                                                        |  |                            | 551,937     |                    |   | 5,000       |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Total
 Current Assets                                                                                                                                       |  |                            | 2,306,434   |                    |   | 914,730     |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Net Property and Equipment                                                                                                                                  |  |                            | 396,704     |                    |   | 100,506     |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Other Assets:                                                                                                                                               |  |                            |             |                    |   |             |  
|Deferred financing fees, net of amortization                                                                                                                |  |                            | 8,445       |                    |   |            |  
|Note receivable, net of current portion                                                                                                                     |  |                            | 69,846      |                    |   |            |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Total
 Other Assets                                                                                                                                         |  |                            | 78,291      |                    |   |            |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|TOTAL
 ASSETS                                                                                                                                               |  | $                          | 2,781,429   |                    | $ | 1,015,236   |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                        |  |                            |             |                    |   |             |  
|Current Liabilities:                                                                                                                                        |  |                            |             |                    |   |             |  
|Accounts payable                                                                                                                                            |  | $                          | 217,456     |                    | $ | 217,455     |  
|Accrued expenses                                                                                                                                            |  |                            | 26,132      |                    |   | 64,132      |  
|Convertible debenture, net of discount                                                                                                                      |  |                            | 34,318      |                    |   | 34,318      |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Total Current Liabilities                                                                                                                                   |  |                            | 277,906     |                    |   | 315,905     |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Total Liabilities                                                                                                                                           |  |                            | 277,906     |                    |   | 315,905     |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Commitments and Contingencies                                                                                                                               |  |                            |             |                    |   |             |  
|Stockholders Equity:                                                                                                                                       |  |                            |             |                    |   |             |  
|Preferred stock, par value $.50; Series A; 4% cumulative; 500,000 shares
 authorized; 155,000 shares issued and outstanding at July 31, 2009                |  |                            | 77,500      |                    |   | 77,500      |  
|Preferred stock, par value $.50; Series B; $.90 cumulative; 500,000
 shares authorized; 1,197 shares issued and outstanding at July 31, 2009                |  |                            | 597         |                    |   | 597         |  
|Common stock, par value $0.01; 30,000,000 shares authorized; 1,842,485
 shares issued and outstanding at July 31, 2009 including 2 shares held in
 treasury |  |                            | 18,425      |                    |   | 18,425      |  
|Contributed capital                                                                                                                                         |  |                            | 52,385,432  |                    |   | 52,221,727  |  
|Accumulated deficit                                                                                                                                         |  |                            | (49,173,964 | )                  |   | (51,487,184 | )
|Treasury shares at cost                                                                                                                                     |  |                            | (131,734    | )                  |   | (131,734    | )
|Deferred compensation                                                                                                                                       |  |                            | (672,733    | )                  |   |            |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|Total Stockholders Equity                                                                                                                                  |  |                            | 2,503,523   |                    |   | 699,331     |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                  |  | $                          | 2,781,429   |                    | $ | 1,015,236   |  
|                                                                                                                                                            |  |                            |             |                    |   |             |  

F-14

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

|                                                                            |  |                            |            |                   |   |            |  
|--------------------------------------------------------------------------- |  | -------------------------- | ---------- | ----------------- | - | ---------- | -
|NOTE 3 -
 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued) |  |                            |            |                  
|                                                                            |  |                            |            |                  
|                                                                            |  |                            |            |                  
|Consolidated Statement of Operations
 For the Year Ended July 31, 2009      |  |                            |            |                  
|                                                                            |  |                            |            |                   |   |            |  
|                                                                            |  | Previously
 Reported
 2009 |            | As Restated
 2009 |  
|                                                                            |  |                            |            |                   |  
|OPERATING REVENUES                                                          |  |                            |            |                   |   |            |  
|Product revenue                                                             |  | $                          | 1,485,298  |                   | $ | 1,485,298  |  
|                                                                            |  |                            |            |                   |   |            |  
|                                                                            |  |                            |            |                   |   |            |  
|Cost of product revenue                                                     |  |                            |            |                   |   |            |  
|Materials and labor used in production                                      |  |                            | 388,254    |                   |   | 618,325    |  
|Inventory obsolesence                                                       |  |                            | 82,138     |                   |   | 169,712    |  
|                                                                            |  |                            |            |                   |   |            |  
|Total Cost of product revenue                                               |  |                            | 470,392    |                   |   | 788,037    |  
|                                                                            |  |                            |            |                   |   |            |  
|                                                                            |  |                            |            |                   |   |            |  
|Gross Profit                                                                |  |                            | 1,014,906  |                   |   | 697,261    |  
|                                                                            |  |                            |            |                   |   |            |  
|                                                                            |  |                            |            |                   |   |            |  
|Selling, general and administrative expenses                                |  |                            |            |                   |   |            |  
|General and administrative                                                  |  |                            | 2,445,290  |                   |   | 1,779,243  |  
|Research and development                                                    |  |                            | 57,089     |                   |   | 368,331    |  
|Selling expenses                                                            |  |                            | 170,564    |                   |   | 170,564    |  
|                                                                            |  |                            |            |                   |   |            |  
|Total selling, general and administrative expenses                          |  |                            | 2,672,943  |                   |   | 2,318,138  |  
|                                                                            |  |                            |            |                   |   |            |  
|Loss from Operations                                                        |  |                            | (1,658,037 | )                 |   | (1,620,877 | )
|                                                                            |  |                            |            |                   |   |            |  
|                                                                            |  |                            |            |                   |   |            |  
|OTHER INCOME (EXPENSES)                                                     |  |                            |            |                   |   |            |  
|Interest expense                                                            |  |                            | (102,379   | )                 |   | (102,379   | )
|Interest income                                                             |  |                            | 16,265     |                   |   | 16,265     |  
|Other income                                                                |  |                            | 352,347    |                   |   |           |  
|Induced conversion cost                                                     |  |                            | (552,370   | )                 |   | (621,880   | )
|Bad debt for note receivable                                                |  |                            |           |                   |   | (83,101    | )
|Amortization of debt discount                                               |  |                            | (123,274   | )                 |   | (123,274   | )
|Amortization of deferred financing fees                                     |  |                            | (286,584   | )                 |   | (128,108   | )
|                                                                            |  |                            |            |                   |   |            |  
|Total Other Income (Expense)                                                |  |                            | (695,995   | )                 |   | (1,042,477 | )
|                                                                            |  |                            |            |                   |   |            |  
|Loss before provision for income taxes                                      |  |                            | (2,354,032 | )                 |   | (2,663,354 | )
|Income tax benefit                                                          |  |                            |           |                   |   | 373,939    |  
|                                                                            |  |                            |            |                   |   |            |  
|NET LOSS                                                                    |  | $                          | (2,354,032 | )                 | $ | (2,289,415 | )
|                                                                            |  |                            |            |                   |   |            |  
|                                                                            |  |                            |            |                   |   |            |  
|NET LOSS PER BASIC AND DILUTED COMMON SHARE                                 |  | $                          | (2.43      | )                 | $ | (2.36      | )
|                                                                            |  |                            |            |                   |   |            |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                        |  |                            | 968,723    | *                 |   | 968,723    | *
|                                                                            |  |                            |            |                   |   |            |  

F-15

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

|                                                                            |  |                            |            |                   |   |            |  
|--------------------------------------------------------------------------- |  | -------------------------- | ---------- | ----------------- | - | ---------- | -
|NOTE 3 -
 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)
|                                                                           
|                                                                            |  |                            |            |                   |   |            |  
|Consolidated Statement of Cash Flows
 July 31, 2009                         |  |                            |            |                   |   |            |  
|                                                                            |  |                            |            |                   |   |            |  
|                                                                            |  | Previously
 Reported
 2009 |            | As Restated
 2009 |  
|                                                                            |  |                            |            |                   |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |                            |            |                   |   |            |  
|Net loss                                                                    |  | $                          | (2,354,032 | )                 | $ | (2,289,415 | )
|Adjustments to reconcile net loss to net
 cash used in operations:          |  |                            |            |                   |   |            |  
|Depreciation                                                                |  |                            | 23,373     |                   |   | 23,374     |  
|Provision for uncollectible note receivable                                 |  |                            |           |                   |   | 83,101     |  
|Reserve for obsolete inventory parts                                        |  |                            |           |                   |   | (4,000     | )
|Write down of obsolete inventory parts                                      |  |                            | 82,138     |                   |   | 173,712    |  
|Amortization of deferred financing fees                                     |  |                            | 123,274    |                   |   | 128,108    |  
|Amortization of deferred compensation                                       |  |                            | 715,242    |                   |   |           |  
|Amortization of prepaid consulting expense                                  |  |                            | 43,732     |                   |   | 47,685     |  
|Amortization of discount on converible debt                                 |  |                            | 77,500     |                   |   |           |  
|Induced conversion costs associated with
 convertible debt and warrants     |  |                            | 552,370    |                   |   | 621,880    |  
|Amortization of deferred loan discount                                      |  |                            | 286,584    |                   |   | 123,274    |  
|Changes in assets and liabilities                                           |  |                            |            |                   |   |            |  
|Decrease in accounts receivable                                             |  |                            | 114,866    |                   |   | 114,866    |  
|(Increase) in prepaid expenses                                              |  |                            | (24,476    | )                 |   | (63,364    | )
|(Increase) in inventories                                                   |  |                            | (627,083   | )                 |   | (366,429   | )
|(Increase) decrease in other current assets                                 |  |                            | 16,592     |                   |   | (5,000     | )
|Increase (decrease) in accounts payable                                     |  |                            |           |                   |   | 51,854     |  
|Increase (decrease) in accrued expenses                                     |  |                            | 17,042     |                   |   | 96,233     |  
|                                                                            |  |                            |            |                   |   |            |  
|Net cash used in operations                                                 |  |                            | (952,878   | )                 |   | (1,264,121 | )
|                                                                            |  |                            |            |                   |   |            |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |                            |            |                   |   |            |  
|Purchase of property and equipment                                          |  |                            | (311,242   | )                 |   |           |  
|Redemption of certificates of deposit                                       |  |                            | 600,182    |                   |   | 600,182    |  
|                                                                            |  |                            |            |                   |   |            |  
|Net cash provided by investing activities                                   |  |                            | 288,940    |                   |   | 600,182    |  
|                                                                            |  |                            |            |                   |   |            |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |                            |            |                   |   |            |  
|Proceeds from note receivable                                               |  |                            | 10,649     |                   |   | 10,650     |  
|                                                                            |  |                            |            |                   |   |            |  
|Net cash provided by financing activities                                   |  |                            | 10,649     |                   |   | 10,650     |  
|                                                                            |  |                            |            |                   |   |            |  
|NET (DECREASE) IN CASH AND CASH EQUIVALENTS                                 |  |                            | (653,289   | )                 |   | (653,289   | )
|CASH AND CASH EQUIVALENTS - BEGINNING OF
 YEAR                              |  |                            | 680,647    |                   |   | 680,647    |  
|                                                                            |  |                            |            |                   |   |            |  
|CASH AND CASH EQUIVALENTS - END OF YEAR                                     |  |                            | 27,358     |                   |   | 27,358     |  
|                                                                            |  |                            |            |                   |   |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:                          |  |                            |            |                   |   |            |  
|CASH PAID DURING THE YEAR FOR:                                              |  |                            |            |                   |   |            |  
|Interest expense                                                            |  | $                          | 7,931      |                   | $ | 8,321      |  
|                                                                            |  |                            |            |                   |   |            |  
|Income Taxes                                                                |  | $                          |           |                   | $ | 520        |  
|                                                                            |  |                            |            |                   |   |            |  
|SUPPLEMENTAL DISCLOSURE OF NONCASH
 ACTIVITIES:                             |  |                            |            |                   |   |            |  
|Debt converted to equity                                                    |  | $                          | 913,809    |                   | $ | 913,809    |  
|                                                                            |  |                            |            |                   |   |            |  
|Common stock issued for services to be
 provided                            |  | $                          | 47,685     |                   | $ | 47,685     |  
|                                                                            |  |                            |            |                   |   |            |  
|Common stock issued for deferred compensation                               |  | $                          | 1,345,465  |                   | $ |           |  
|                                                                            |  |                            |            |                   |   |            |  
|Common stock issued for accrued interest                                    |  | $                          | 94,448     |                   | $ | 94,058     |  
|                                                                            |  |                            |            |                   |   |            |  
|Common stock resinded from Emplyee Stock
 Grant Plan                        |  | $                          | 581,490    |                   | $ |           |  
|                                                                            |  |                            |            |                   |   |            |  

F-16

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 4 - INVENTORY

Inventory
consisted of the following as of July 31,

|                        |  |      |         |                   |   |         | 
|----------------------- |  | ---- | ------- | ----------------- | - | ------- | 
|                        |  | 2010 |         | As Restated
 2009 |  
|                        |  |      |         |                   |  
|                        |  |      |         |                   |   |         | 
|Finished Goods          |  | $    | 587,835 |                   | $ | 325,943 | 
|Work-in-process         |  |      | 83,441  |                   |   | 23,711  | 
|Raw materials           |  |      | 228,803 |                   |   | 326,128 | 
|                        |  |      |         |                   |   |         | 
|                        |  |      | 900,079 |                   |   | 675,782 | 
|Less: Inventory reserve |  |      | 74,000  |                   |   | 88,000  | 
|                        |  |      |         |                   |   |         | 
|Inventory, net          |  | $    | 826,079 |                   | $ | 587,782 | 
|                        |  |      |         |                   |   |         | 

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

As of July 31, 2010 and 2009, inventory reserves amounted to $74,000
and $88,000, respectively. For the years ended July 31, 2010 and 2009,
inventory written off as obsolete, amounted to $89,565 and $173,712,
respectively, and was charged to cost of sales.

NOTE 5 - NOTE RECEIVABLE

The Company entered into an Agreement to Rescind an Asset Purchase
Agreement, dated October 22, 2002. This Agreement requires the repayment of
$148,640, consisting of principal and interest accrued to July 31, 2004.
Payments of $1,607 (principal of $1,239 and interest at 5% of $368) begin
December 30, 2004 and were to have continued monthly until the full balance was
repaid. During fiscal 2009, the maker of the note stopped making payments and
the Company reserved $83,100 at July 31, 2009. During fiscal 2010 the principal
made only one payment of $1,610. The Company filed legal action and a Judgment
was granted in favor of the Company. Any future collections from the principal
will be recorded as income.

NOTE 6 - INCOME TAXES

The income tax expense (benefit) is comprised of the following:

|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|--------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------- |  | ----- | -------- | ---- | ----- | -------- | - |  | 
|                                                                                                                      |                                                           |                   |  | 2010  |          | 2009 |       |          |  
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |  
|                                                                                                                      |                                                           | Current:          |  |       |          |      |       |          |   |  | 
|                                                                                                                      |                                                           | Federal           |  | $     |         |      | $     |         |   |  | 
|                                                                                                                      |                                                           | State             |  |       | (137,331 | )    |       | (373,939 | ) |  | 
|                                                                                                                      |                                                           | Deferred:         |  |       |          |      |       |          |   |  | 
|                                                                                                                      |                                                           | Federal           |  |       |         |      |       |         |   |  | 
|                                                                                                                      |                                                           | State             |  |       |         |      |       |         |   |  | 
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|                                                                                                                      |                                                           | Total tax benefit |  | $     | (137,331 | )    | $     | (373,939 | ) |  | 
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|The U.S. federal statutory income tax rate is reconciled to the
effective rate at July 31, 2010 and 2009, as follows:
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|                                                                                                                      |                                                           |                   |  | 2010  |          | 2009 |       |          |  
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |  
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|                                                                                                                      | Income tax
 expense at U.S. federal statutory rate        |                   |  | (34.0 | %)       |      | (34.0 | %)       |  
|                                                                                                                      | New Jersey state statutory rate                           |                   |  | (5.8  | %)       |      | (5.8  | %)       |  
|                                                                                                                      | Change in valuation allowance                             |                   |  | 2.3   | %        |      | 12.7  | %        |  
|                                                                                                                      | Loss on derivative financial instruments                  |                   |  | 30.1  | %        |      | 0.0   | %        |  
|                                                                                                                      | Common stock issue for services                           |                   |  | 2.9   | %        |      | 0.0   | %        |  
|                                                                                                                      | Amortization of debt discount and deferred financing fees |                   |  | 2.9   | %        |      | 3.8   | %        |  
|                                                                                                                      | Benefits and modification of debt                         |                   |  | .9    | %        |      | 0.0   | %        |  
|                                                                                                                      | Induced conversion cost                                   |                   |  | .2    | %        |      | 9.3   | %        |  
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 
|                                                                                                                      | Effective tax benefit                                     |                   |  | (0.5  | %)       |      | (14.0 | %)       |  
|                                                                                                                      |                                                           |                   |  |       |          |      |       |          |   |  | 

F-17

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 6  INCOME TAXES(continued)

In 1998, the State of New Jersey enacted legislation allowing emerging
technology and/or biotechnology companies to sell their unused New Jersey Net
Operating Loss (NOL) Carryover and Research and Development Tax Credits
(R&D Credits) to corporate taxpayers in New Jersey. During fiscal years
ended July 31, 2010 and 2009, the Company entered into agreements to sell up to
$5,594,000 and $4,757,000 of its unused tax losses. The Company received net
proceeds of $284,703 and $376,819 during the fiscal years ended July 31, 2010
and 2009 respectively, related to the sale and accordingly recorded them as a
tax benefit in the year received. The net tax benefit recorded in the Statement
of Operations consists of the proceeds received from the sale of the Companys
NJ NOLs offset by the unrecorded tax benefit due to uncertain tax positions of
$135,000 in 2010.

Deferred taxes are recognized for temporary differences between the
bases of assets and liabilities for financial statement and income tax
purposes, and net operating losses. The temporary differences causing deferred tax benefits are primarily
due to net operating loss carry forwards. The Company has established a
valuation allowance at the full value of the deferred tax asset.

At July 31, 2010 and 2009, the Company has net operating loss
carryforwards for Federal income tax purposes of approximately
$26,890,000 and $25,430,000 respectively, which is available to offset future
Federal taxable income through 2030. At July 31, 2010 and 2009, the Company has net operating loss
carryforwards forward state income tax purposes of approximately $6,900,000 and $5,302,000 respectively, to offset future state
taxable income through 2030.

There was no provision for income taxes for the year ended July 31,
2010 and July 31, 2009. The Company has no open tax years prior to 2005 for the
State of New Jersey and 2003 for the Federal Income purposes which are subject
to examination.

The components of the net deferred tax assets (liabilities) at July 31,
2010 and 2009 are as follows:

|                                      |  |      |            |      |   |            |  
|------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                      |  | 2010 |            | 2009 |  
|                                      |  |      |            |      |  
|                                      |  |      |            |      |   |            |  
|Deferred tax asset                    |  |      |            |      |   |            |  
|Net operating loss                    |  | $    | 9,708,000  |      | $ | 9,080,000  |  
|Reserves                              |  |      | 63,000     |      |   | 65,000     |  
|                                      |  |      |            |      |   |            |  
|Total deferred tax assets             |  |      | 9,771,000  |      |   | 9,145,000  |  
|                                      |  |      |            |      |   |            |  
|Deferred tax
 liability               |  |      |            |      |   |            |  
|Property and equipment (depreciation) |  |      |           |      |   |           |  
|                                      |  |      |            |      |   |            |  
|                                      |  |      |            |      |   |            |  
|Net deferred tax asset                |  |      | 9,771,000  |      |   | 9,145,000  |  
|                                      |  |      |            |      |   |            |  
|Less: Valuation allowance             |  |      | (9,771,000 | )    |   | (9,145,000 | )
|                                      |  |      |            |      |   |            |  
|Net deferred tax asset                |  | $    |           |      | $ |           |  
|                                      |  |      |            |      |   |            |  

The Company periodically assesses the likelihood that it will be able
to recover its deferred tax assets and determines if a valuation allowance is
necessary. As a result of this analysis the Company concluded that it is more
likely than not that its deferred tax assets will not be recovered and,
accordingly, recorded a 100% of the deferred tax asset to a valuation allowance
as of July 31, 2010 and 2009.

The Company accounts for the recognition, measurement, presentation and
disclosure of uncertain tax positions in accordance with the provisions of ASC
740-10, Accounting for Uncertainty in Income Taxes. The Company evaluates these
unrecognized tax benefits each reporting period. As of July 31, 2010, the total
amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate is $135,000. The unrecognized tax benefit is the result of
the Companys position to deduct the write off of the obsolete inventory for
income tax purposes. The Company maintains some of its obsolete inventory for
utilization in repairing its products previously sold in accordance with the
Companys warranty program. The Company over the years has discarded obsolete
inventory, however the Company did not keep a detailed log of the inventory
that was discarded. These inventory items were written
down to zero in the Companys inventory system as they were deemed to
have no value and therefore the Company deducted the amounts on its income tax
returns.

F-18

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 6  INCOME TAXES(continued)

A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:

|                                                          |  |               |         | 
|--------------------------------------------------------- |  | ------------- | ------- | 
|                                                          |  | July 31, 2010 |        
|Balance at
 beginning of year                             |  | $             |        | 
|Additions
 based on tax positions related to current year |  |               | 135,000 | 
|                                                          |  |               |         | 
|Balance at
 end of year                                   |  | $             | 135,000 | 
|                                                          |  |               |         | 

The Company
and its subsidiaries are subject to United States federal income tax as well as
income tax of multiple state jurisdictions. These uncertain tax positions are
related to the Sale of the Companys NJ NOLs and are within the tax years that
remain subject to examination by the relevant taxing authorities.

It is
reasonably possible that the amount of unrecognized tax benefits will increase
or decrease in the next twelve months. These changes may be the result of new
state audits. It is also expected that the statute of limitations for certain
unrecognized tax benefits will expire in the next 12 months resulting in a
reduction of the liability for unrecognized tax benefits of approximately
$22,000. The balance of the unrecognized tax benefits is primarily related to
uncertain tax positions for which there are no current ongoing federal or state
audits and therefore, an estimate of the range of the reasonably possible
outcomes cannot be made.

The Company
has recorded accrued interest of $5,000 as of July 31, 2010 which has been
included in interest expense in the Statement of Operations.

NOTE 7 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 tax year 2010 and 2009 this maximum allowable
deferred contribution was $16,500 ($22,500 for employee over age 50). Employer
contributions to the plan are discretionary and determined annually by
management. The Company made matching contributions to the plan of $0 and
$98,893 for the fiscal years ended July 31, 2010 and 2009, respectively.

F-19

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 8  STOCKHOLDERS EQUITY

The
Series A Preferred Stock provides 4% cumulative dividends, which were $126,983
($0.82 per share) and $123,883 ($0.80 per shares) in arrears at July 31, 2010
and 2009, 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 $204,483 and $201,383 at July 31, 2010 and 2009, respectively.

The
Series B Preferred Stock provides cumulative dividends of $0.90 per share,
which were $42,096 ($35.17 per share) and $42,096 ($35.17 per share) in arrears
at July 31, 2010 and 2009, 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 $60,051 and $58,971
at July 31, 2010 and 2009, respectively.

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

On
February 25, 2009, at the Annual Meeting the Companys shareholders then
approved a proposed amendment to the Companys certificate of incorporation to
effect a one-for-five reverse split of the Companys common stock which was
subsequently approved by the Companys board of directors.On June 23, 2010,
the Company received a NASDAQ Staff Deficiency Letter stating that the Company
no longer complied with the NASDAQ Listing Rules (the Listing Rules) for
continued listing on The NASDAQ Stock Market (NASDAQ) because the Company had
not maintained a minimum of $2,500,000 in stockholders equity as required by
Listing Rule 5550(b)(1), and because the Companys Form 10-Q for the period
ended April 30, 2010, had not yet been reviewed in accordance with Statement of
Auditing Standards No. 100, as required by Rule 8-03 of Regulation S-X,
pursuant to Listing Rule 5250(c)(1). Thereafter, on June 23, 2010, the Company
received a NASDAQ Staff Determination Letter indicating that the Staff had
concluded that the Company had not solicited proxies or held its annual meeting
within the timeframe required by Listing Rules 5620(a) and 5620(b) and
accordingly, determined to initiate procedures to delist the Companys
securities from NASDAQ. Finally, on August 13, 2010, the Company received a
NASDAQ Staff Deficiency Letter stating that, as the bid price of the Companys
common stock had closed below the minimum $1.00 per share requirement set forth
in by NASDAQ Listing Rule 5550(a)(2), and in accordance with Listing Rule
5810(c)(3)(A), the Company had been provided 180 calendar days, or until
February 9, 2011, to regain compliance with that requirement.

On
September 15, 2010, the Company attended a hearing before the NASDAQ Listing
Qualifications Panel (the Panel) to present its plan to evidence compliance
with all applicable Listing Rules and to request an extension of time within
which to do so. By decisions dated October 19, 2010, November 3, 2010, and
November 23, 2010, the Panel determined to continue the Companys listing on
NASDAQ, subject to certain conditions. The Companys continued listing on
NASDAQ is conditioned upon the Company becoming current in its SEC reporting
obligations by November 30, 2010, evidencing compliance with the minimum
$2,500,000 million stockholders equity requirement, as well as its ability to
sustain compliance with that requirement, by December 31, 2010, and soliciting
proxy statements and holding the 2010 annual meeting of stockholders by January
14, 2011, among other things. The Company is continuing to work toward
regaining compliance with all of the applicable Listing Rules as required by
the Panel decision; however, if it is unable to do so, the Companys securities
may be delisted from NASDAQ.

During
the years ended July 31, 2010 and 2009, $1,037,949 and $913,809 of convertible
Debentures, respectively, were converted into 1,328,645 and 636,570 shares of
common stock, respectively.

During
the years ended July 31, 2010 and 2009, $39,546 and $94,058 of interest
expense, respectively, were converted into 50,559 and 51,526 shares of common
stock, respectively.

F-20

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 8  STOCKHOLDERS EQUITY (continued)

During
the years ended July 31, 2010 and 2009, the Company issued 265,000 and 20,500
common shares, respectively, to consultants for services to be provided. The
common shares were valued at $508,800 and $28,185 for the years ended July 31,
2010 and 2009, respectively.

During
the years ended July 31, 2010 and 2009, the Company issued 735,000 and 0 common
shares, respectively, to officers, directors and employees as compensation. The
common shares were valued at $1,411,200 and $0 for the years ended July 31,
2010 and 2009.

During
the years ended July 31, 2010 and 2009, investors were issued 2,746,192 and 0
common shares, respectively, for the exercise of warrants. The Company received
proceeds of $635,070 and $0 from the exercise of these warrants during the
years ended July 31, 2010 and 2009, respectively.

During
the year ended July 31, 2009, the Company re-issued 745,895 common shares to
officers, directors, employees and consultants that were initially issued in
the year ended July 31, 2008. The initial shares issued in fiscal year ended
July 31, 2008 were cancelled. There was no additional incremental value upon
re-issuance and no compensation expense was recorded in the year ended July 31,
2009.

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

|                                       |  |                      |            |               |   |                  |  |  |         | 
|-------------------------------------- |  | -------------------- | ---------- | ------------- | - | ---------------- |  |  | ------- | 
|                                       |  | Number
 of
 Warrants |            | Strike
 Price |   | Expiration
 Date | 
|                                       |  |                      |            |               |   |                  | 
|                                      
|2/18/2005 Warrants                     |  |                      | 6,321      |               | $ | 150.00           |  |  | 2/18/10 | 
|7/16/2005 Warrants                     |  |                      | 12,000     |               | $ | 202.70           |  |  | 7/16/10 | 
|1/19/2006 Warrants                     |  |                      | 417        |               | $ | 25.00            |  |  | 1/19/11 | 
|3/12/2007 Warrants                     |  |                      | 84,750     |               | $ | 21.00            |  |  | 3/12/12 | 
|11/2/2007 Warrants                     |  |                      | 33,355     |               | $ | 33.20            |  |  | 11/2/12 | 
|                                       |  |                      |            |               |   |                  |  |  |         | 
|Outstanding Balance at
 August 1, 2008 |  |                      | 136,843    |               |   |                  |  |  |         | 
|                                      
|Issued                                 |  |                      |           |               | $ |                 |  |  |         | 
|Exercised                              |  |                      |           |               | $ |                 |  |  |         | 
|Cancelled                              |  |                      |           |               | $ |                 |  |  |         | 
|                                       |  |                      |            |               |   |                  |  |  |         | 
|                                      
|Outstanding Balance at July
 31, 2009  |  |                      | 136,843    |               |   |                  |  |  |         | 
|                                       |  |                      |            |               |   |                  |  |  |         | 
|                                      
|Issued:                                |  |                      |            |               |   |                  |  |  |         | 
|Class A Warrants                       |  |                      | 2,564,102  |               | $ | 1.12             |  |  | 8/3/14  | 
|Class C Warrants                       |  |                      | 2,564,104  |               | $ | 1.12             |  |  | 2/26/15 | 
|Selling Agent Warrants                 |  |                      | 256,410    |               | $ | 1.12             |  |  | 8/3/14  | 
|Selling Agent Warrants                 |  |                      | 256,410    |               | $ | 1.12             |  |  | 2/26/15 | 
|                                       |  |                      |            |               |   |                  |  |  |         | 
|Exercised:                             |  |                      |            |               |   |                  |  |  |         | 
|Class A Warrants                       |  |                      | (1,929,032 | )             | $ | 0.01             |  |  | 8/3/14  | 
|Class A Warrants                       |  |                      | (635,070   | )             | $ | 1.00             |  |  | 8/3/14  | 
|Class C Warrants                       |  |                      |           |               | $ |                 |  |  |         | 
|Selling Agent Warrants                 |  |                      | (256,410   | )             | $ | 1.12             |  |  | 8/3/14  | 
|                                       |  |                      |            |               |   |                  |  |  |         | 
|Cancelled:                             |  |                      |            |               |   |                  |  |  |         | 
|Class A Warrants                       |  |                      |           |               | $ |                 |  |  |         | 
|Class C Warrants                       |  |                      |           |               | $ |                 |  |  |         | 
|Selling Agent Warrants                 |  |                      |           |               | $ |                 |  |  |         | 
|2/18/2005 Warrants                     |  |                      | (6,321     | )             | $ | 150.00           |  |  | 2/18/10 | 
|7/16/2005 Warrants                     |  |                      | (12,000    | )             | $ | 202.70           |  |  | 7/16/10 | 
|                                       |  |                      |            |               |   |                  |  |  |         | 
|                                      
|Outstanding Balance at July
 31, 2010  |  |                      | 2,939,036  |               |   |                  |  |  |         | 
|                                       |  |                      |            |               |   |                  |  |  |         | 

F-21

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 8  STOCKHOLDERS EQUITY (continued)

As
of July 31, 2010, the Company has the following warrants outstanding:

|                       |  |  |           | 
|---------------------- |  |  | --------- | 
|1/19/2006 Warrants     |  |  | 417       | 
|3/12/2001 Warrants     |  |  | 84,750    | 
|11/2/2007 Warrants     |  |  | 33,355    | 
|Class C Warrants       |  |  | 2,564,104 | 
|Selling Agent Warrants |  |  | 256,410   | 
|                       |  |  |           | 
|Total                  |  |  | 2,939,036 | 
|                       |  |  |           | 

F-22

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 8  STOCKHOLDERS EQUITY (continued)

The
above table excludes our Class B warrants for which 40,000 were issued and
10,000 were exercised during the year ended July 31, 2010. During the fiscal
year ended July 31, 2010, the Company issued Class B Warrants to purchase up to
$4,000,000 of principal amount of the Companys 8% convertible notes on the
same terms as the August 2009 Debentures, upon the exercise of the Class B
Warrants, the holder of the Class B Warrant will be issued two Class C Warrants
for each share of the Companys common stock that would be issued on the
exercise date of the Class B Warrant assuming the full conversion of the notes
issued on such date, and Class C warrants which entitle the warrant holder to
purchase 10,256,416 shares of the Companys Common Stock with and exercise
price equal to the lesser of 105 % of the closing bid price of the Companys
common stock or the exercise price of the Class A Warrants.

All
of our outstanding warrants (with the exception of the Class B warrants)
contain a cashless exercise provisions whereby, the holder is entitled to
receive a number of shares of common stock equal to (x) the excess of the
market price of our common stock as of the trading day immediately prior to the
exercise date over the total cash exercise price of the portion of the warrant
then being exercised, divided by (y) the market price of our common stock as of
the trading day immediately prior to the date of exercise.

For
further information regarding the Companys warrants please see Notes 9 and 10.

NOTE 9  CONVERTIBLE DEBENTURES

March 2007 Debentures On
March 12, 2007, the Company issued an aggregate $2,825,000 convertible
Debentures (March 2007 Debentures) pursuant to a subscription agreement. The
March 2007 Debentures accrue interest at the rate of 6% per annum and mature on
March 12, 2009. They are convertible into the Companys common stock at a
conversion price of $2.00 per share. The Company also issued warrants to
purchase 1,412,500 shares of the Companys common stock at an exercise price of
$2.88 per share. After deducting fees paid to the selling agent and other
professional fees, the Company received net proceeds of $2,487,500. The Company
recorded a discount to the March 2007 Debentures in the amount of $2,018,962.
This amount consists of a beneficial conversion feature in the amount of
$483,623 determined on the intrinsic value between the fair market value of the
Companys stock and the conversion price and $1,535,339 debt discount related
to the relative fair value of the warrants.

On
September 7, 2007, the Companys Board of Directors voted unanimously to adjust
the original conversion price of the March 2007 Debentures from $2.00 to $1.40
resulting in the conversion of the March 2007 Debentures in the amount of
$1,246,171. The Company also recognized an induced conversion cost related to
this conversion of $550,339.

On
December 26, 2007, the Companys Board of Directors voted unanimously to
further adjust the original conversion price of March 2007 Debentures from
$1.40 to $1.05. There were no conversions of the March 2007 Debentures as a
result of this reduction in the conversion price.

On
June 12, 2008, the Companys Board of Directors voted unanimously to adjust the
original conversion price of the outstanding March 2007 Debentures from $4.20
(post reversal) to $1.20 resulting in the conversion of the Debentures in the
amount of $627,071. The Company also recognized an induced conversion cost
related to this conversion of $303,583.

On
September 8, 2008, the Company reduced the exercise price of the warrants
issued in connection with the March 2007 Debentures, from $1.20 per share to
$0.50 per share. Pursuant to Section 12 (b) of the Subscription Agreement, as a
result of the reduction of the exercise price of the warrants, the conversion
price of the March 2007 Debentures issued in connection with the Subscription
Agreement was also reduced to $0.50 per share. As a result of the above
reductions in exercise and conversion prices, as of February 9, 2009 the
investors have converted and additional $387,592 of the March 2007 Debentures
plus accrued interest of $69,888 into 182,992 common stock shares. The Company
also recognized an induced conversion cost related to these conversions of
$420,817.

F-23

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 9  CONVERTIBLE DEBENTURES(continued)

March 2007 Debentures
(continued)

On March 9, 2009, the Company and holders of its outstanding March 2007
Debentures agreed that the maturity date of the Debentures to be August 31,
2009; the holders of the March 2007 Debentures may convert any principal amount
or interest remaining at an applied conversion rate equal to the lesser of (A) the
fixed conversion price or (B) seventy-five percent of the average closing bid
price of the common stock for the five trading days preceding the date of the
notice of conversion.

As a result of the above amendment to the maturity date and the
amendment to the conversion price, the Debenture holders converted $526,217 of
the March 2007 Debentures into 505,104 shares of common stock. The Company also
recognized an induced conversion cost related to this conversion of
approximately $201,063.

The remaining balance of the March 2007 Debentures in the amount of
$37,949 and $2,578 of accrued interest was converted on August 18, 2009 into
49,758 shares of common stock. The Company also recognized an induced
conversion cost related to this conversion of approximately $31,208.

As of July 31, 2010 the remaining balance on the March 2007 Debenture
was $0. As of July 31, 2009 the remaining balance on March 2007 Debenture was
$34,318, net of an unamortized discount of $3,631.

The following is a roll forward schedule of our March 2007 Debenture:

|                              |  |                    |          |               |   |          |   |   |          |  
|----------------------------- |  | ------------------ | -------- | ------------- | - | -------- | - | - | -------- | -
|                              |  | Principal
 Balance |          | Debt Discount |   | Net Debt |  
|                              |  |                    |          |               |   |          |  
|                              |  |                    |          |               |   |          |   |   |          |  
|Balance, July 31, 2008        |  | $                  | 951,758  |               | $ | (126,905 | ) | $ | 824,853  |  
|Conversions                   |  |                    | (913,809 | )             |   |         |   |   | (913,809 | )
|Amortization of debt discount |  |                    |         |               |   | 123,274  |   |   | 123,274  |  
|                              |  |                    |          |               |   |          |   |   |          |  
|                              |  |                    |          |               |   |          |   |   |          |  
|Balance, July 31, 2009        |  |                    | 37,949   |               |   | (3,631   | ) |   | 34,318   |  
|August 2009 Conversion        |  |                    | (37,949  | )             |   |         |   |   | (37,949  | )
|Amortization of debt discount |  |                    |         |               |   | 3,631    |   |   | 3,631    |  
|                              |  |                    |          |               |   |          |   |   |          |  
|                              |  |                    |          |               |   |          |   |   |          |  
|Balance July 31, 2010         |  | $                  |         |               | $ |         |   | $ |         |  
|                              |  |                    |          |               |   |          |   |   |          |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|August 2009 Debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|On August 3, 2009, the Company entered into a Subscription Agreement
 pursuant to which it sold a $500,000 convertible Debenture on August 3, 2009
 and a $500,000 Debenture on September 24, 2009. (collectively, the August
 2009 Debentures). The initial interest rate of the August 2009 Debentures is
 4% per annum and upon the shareholder Approval the interest rate will be 8%
 per annum. The August 2009 Debentures have maturity dates of 15 months from their
 closing dates. Interest shall accrue from the closing date and shall be
 payable quarterly, in arrears, commencing six months after the closing date.
 The August 2009 Debentures are convertible into shares of the Companys
 common stock at a conversion price of $0.78 per share. Commencing six months
 after the closing date, the Conversion Price shall be adjusted to the lesser
 of the $0.78 or 75% of the lowest three closing bid prices for the Companys
 common stock for the ten days prior to when the August 2009 Debenture is
 converted. Additionally, the conversion price of the Debenture is adjustable
 upon the occurrence of certain events. Accordingly, the conversion feature of
 the Debenture was accounted for as a discount to the August 2009 Debentures
 in the amount of $1,000,000 at their commitment dates.

F-24

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 9  CONVERTIBLE DEBENTURES(continued)

August 2009 Debentures (continued)

In connection with the August 2009 Debentures, the Company issued
 Class A and Class B warrants. The Class A warrants provide the holder with
 the option to purchase 2,564,102 shares of the Companys common stock at an
 exercise price $1.12 per share. The Class A warrants are exercisable for a
 period beginning on August 3, 2009 and terminate on August 3, 2014.
 Additionally, the 40,000 Class B Warrants issued entitles the holder until
 July 3, 2012, to purchase up to $4,000,000 of principal amount of the
 Companys 8% notes on the same terms as the August 2009 Debentures. Upon the
 exercise of the Class B Warrants, the holder of the Class B Warrant will be issued two Class
C Warrants for each share of the Companys common stock that would be issued on
the exercise date of the Class B Warrant assuming the full conversion of the
notes issued on such date. The Class C warrants entitle the warrant holder to
purchase 10,256,416 shares of the Companys Common Stock with and exercise
price equal to the lesser of 105 % of the closing bid price of the Companys
common stock or the exercise price of the Class A Warrants. For each $100,000
principal of notes purchased pursuant to the Class B Warrants, the holder will
surrender 1,000 Class B Warrants. The Class A and Class B Warrants were
accounted for as derivative liabilities resulting in a charge to derivative
liability with a corresponding charge to the statement of operations at the
commitment date of the August 2009 Debenture in the amount of $16,975,954. (See
Note 10).

The August 2009 Debentures cannot be converted to the extent such
conversion would cause the Debenture holder, together with such holders
affiliates, to beneficially own in excess of 4.99% of the of the Companys
outstanding common stock immediately following such conversion. The Company
also entered into a Security Agreement pursuant to which it granted the
Subscribers a security interest in its assets. The Security Agreement will
terminate when the August 2009 Debentures, including outstanding interest due
thereon are repaid.

In accordance with the terms of the August 2009 Debentures, the
occurrence of any of the following events shall, at the option of the note
holder, make all sums of principal and interest then remaining unpaid
immediately due and payable, upon demand:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to pay principal or
 interest when due and such failure continues for a period of five (5)
 business days after the due date.                                                                                                                                                                                                                                                                                                    
| | The Company breaches any material covenant or other term or condition
 of the subscription agreement and convertible Debenture in any material
 respect and such breach, if subject to cure, continues for a period of ten
 (10) business days after written notice to the Company from the note holder.                                                                                                                                 
| | Breach of any material representation or warranty of the Company made
 in the subscription agreement or convertible Debenture or in any agreement,
 statement or certificate given in writing shall be false or misleading in any
 material respect as of the date made and the closing Date.                                                                                                                                            
| | The Company or any Subsidiary of Company shall make an assignment for
 the benefit of creditors, or apply for or consent to the appointment of a
 receiver or trustee for them or for a substantial part of their property or
 business; or such a receiver or trustee shall otherwise be appointed.                                                                                                                                     
| | Any money judgment, writ or similar final process shall be entered or
 filed against the Company or any subsidiary of the Company or any of their
 property or other assets for more than $100,000, and shall remain unvacated,
 unbonded or unstayed for a period of forty-five (45) days.                                                                                                                                              
| | The Company shall have received a notice of default, which remains
 uncured for a period of more than twenty (20) business days, on the payment
 of any one or more debts or obligations aggregating in excess of One Hundred
 Thousand Dollars (US $100,000.00) beyond any applicable grace period;                                                                                                                                     
| | Bankruptcy, insolvency, reorganization or liquidation proceedings or
 other proceedings or relief under any bankruptcy law or any law, or the
 issuance of any notice in relation to such event, for the relief of debtors
 shall be instituted by or against the Company or any subsidiary of the
 Company and if instituted against them are not dismissed within sixty (60)
 days of initiation.                                      
| | Failure of the Common Stock to be quoted or listed on the NASDAQ National
 Market System; failure to comply with the requirements for continued listing
 on the Bulletin Board for a period of seven consecutive trading days; or
 notification from the Bulletin Board or the NASDAQ National Market System
 that the Company is not in compliance with the conditions for such continued
 listing on the NASDAQ National Market System.
| | An SEC or judicial stop trade order or a NASDAQ National Market
 System trading suspension with respect to Borrowers Common Stock that lasts
 for five or more consecutive trading days.                                                                                                                                                                                                                                                
| | The Companys failure to timely deliver Common Stock to the note
 holder pursuant to and in the form required by this convertible note or
 subscription agreement, and, if requested by Company, a replacement
 convertible note, and such failure continues for a period of five (5)
 business days after the due date.                                                                                                                 
| | The Company effectuates a reverse split of its Common Stock without
 twenty days prior written notice to the note holder.                                                                                                                                                                                                                                                                                                                
| | A default by the Company of a material term, covenant, warranty or
 undertaking of any agreement to which the Company and note holder are
 parties, or the occurrence of a material event of default under any such
 other agreement which is not cured after any required notice and/or cure
 period.                                                                                                                                   

F-25

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 9  CONVERTIBLE DEBENTURES(continued)

August 2009 Debentures (continued)

In connection with the August 2009 Debentures Agreement entered into on
August 3, 2009, the Company paid Garden State Securities, Inc., the selling
agent, a cash fee of $100,000 and issued warrants to purchase 256,410 shares of
the Companys common stock. The Company calculated the fair value of the
warrants on August 3, 2009 at $231,025 using the Black-Scholes option pricing
model. The assumptions used in computing the fair value are a closing stock
price of $1.14, expected volatility of 108% over the remaining contractual life
of five years and a risk free rate of 2.66%. The Company recorded the cash fee
and the fair value of the warrants issued to Garden State Securities, Inc. plus
$40,000 fee paid to an attorney totaling $371,025, as deferred financing costs.
The deferred financing costs are being amortized over the term of the August
2009 Debenture Agreement. As of July 31, 2010, the remaining balance was $0.

At various times during the year ended July 31, 2010, an aggregate
$1,000,000 of the August 2009 Debentures and $36,968 of accrued interest were
converted into 1,329,447 shares of the Companys common stock. As of July 31,
2010 the remaining balance of the August 2009 Debentures were $0.

The following is a roll forward schedule of our August 2009 Debenture:

|                              |  |                    |            |               |   |            |   |   |            |  
|----------------------------- |  | ------------------ | ---------- | ------------- | - | ---------- | - | - | ---------- | -
|                              |  | Principal
 Balance |            | Debt Discount |   | Net Debt   |  
|                              |  |                    |            |               |   |            |  
|                              |  |                    |            |               |   |            |   |   |            |  
|Balance, August 1, 2009       |  | $                  |           |               | $ |           |   | $ |           |  
|Debt issuance                 |  |                    | 1,000,000  |               |   | (1,000,000 | ) |   |           |  
|Conversions                   |  |                    | (1,000,000 | )             |   |           |   |   | (1,000,000 | )
|Amortization of debt discount |  |                    |           |               |   | 1,000,000  |   |   | 1,000,000  |  
|                              |  |                    |            |               |   |            |   |   |            |  
|                              |  |                    |            |               |   |            |   |   |            |  
|Balance, July 31, 2010        |  | $                  |           |               | $ |           |   | $ |           |  
|                              |  |                    |            |               |   |            |   |   |            |  

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|February 2010 Debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|On February 24, 2010, holders of the Class B warrants exercised
 10,000 Class B Warrants to purchase $1,000,000 in convertible notes
 (February 2010 Debentures). The February 2010 Debentures were issued under
 the same terms as the August 2009 Debentures. Accordingly, the conversion
 feature of the Debenture was accounted for as a liability resulting in a
 discount to the February 2010 Debentures in the amount of $1,000,000 at their
 commitment dates. With the exercise of the 10,000 Class B warrants, the
 Company also issued Class C Warrants to purchase 2,564,104 shares of the
 Companys common stock at an exercise price of $1.12.                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|In connection with the exercise of the Class B warrants and pursuant
 to Selling Agent Agreement the Company paid Garden State Securities, Inc., a
 cash fee of $100,000 and issued Garden State additional warrants to purchase
 256,410 shares of the Companys common stock. The Company calculated the fair
 value of the warrants on March 3, 2010 to be $380,256 using the Black-Scholes
 option pricing model. The assumptions used in computing the fair value are a
 closing stock price of $1.12, expected volatility of 108% over the remaining
 contractual life of five years and a risk free rate of 2.27%. The Company
 recorded the cash fee and the fair value of the warrants totaling $480,256
 issued to Garden State as deferred financing costs. The deferred financing
 costs are being amortized over the term of the February 2010 Debentures. The
 remaining balance at July 31, 2009 was $382,132.                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|The August 2009 Debentures, February 2010 Debentures, Class A
 warrants, Class B warrants, Class C warrants and the warrants granted to the
 selling agent contain provisions whereby if the Company shall offer, issue or
 agree to issue any common stock or securities into or exercisable for shares
 of common stock to any person or entity at a price per share or conversion or
 exercise price per share which shall be less than the conversion price of the
 August 2009 Debentures and February 2010 Debentures or less than the exercise
 price of the Class A warrants, Class B warrants, Class C warrants or the
 warrants granted to the selling agent, then the conversion price and the warrant
 exercise price shall automatically be reduced to such other lower issue
 price. Due to this provision, the embedded conversion features of the
 Debentures and the warrants are not considered indexed to the Companys
 stock. Accordingly, these financial instruments have been recorded as a
 derivative liability.

F-26

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 9  CONVERTIBLE DEBENTURES(continued)

February 2010 Debentures (continued)

On June 18, 2010, Conolog Corporation (the Company) entered into an
amendment with the holders of its outstanding convertible debentures and
warrants. Pursuant to the amendments, the parties agreed to the following: (i)
remove the above provision which allowed for an adjustment to the conversion
price of the debentures or exercise price of the debentures, (ii) the
conversion feature of the February 2010 debentures were adjusted to a fixed
conversion price $0.60, (iii) all future Class C Common Stock Purchase Warrants
issued upon exercise of the Class B Common warrants shall have an exercise
price of $0.50 per share, (iv) the exercise price of the outstanding Class C
warrants shall be adjusted to $0.50 per share, (v) the exercise price of the
outstanding selling agent warrants shall be adjusted to $0.60 per share.

As a result of the June 18, 2010 amendments the embedded conversion
features of the debentures and the warrants were considered indexed to the
Companys stock. Accordingly, the outstanding derivative liabilities were
reclassified to additional paid in capital at their fair value on June 18, 2010
with the change in fair value being recorded in the statement of operations
(See Note 10).

The Company
also entered into a Security Agreement pursuant to which it granted the
Subscribers a security interest in its assets. The Security Agreement will
terminate when the February 2010 Debentures, including outstanding interest due
thereon are repaid.

In accordance with the terms of the February 2010
    Debentures, the occurrence of any of the following events shall, at the option
    of the note holder, make all sums of principal and interest then remaining
    unpaid immediately due and payable, upon demand:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to pay principal or
 interest when due and such failure continues for a period of five (5)
 business days after the due date.                                                                                                                                                                                                                                                                                                    
| | The Company breaches any material covenant or other term or condition
 of the subscription agreement and convertible Debenture in any material
 respect and such breach, if subject to cure, continues for a period of ten
 (10) business days after written notice to the Company from the note holder.                                                                                                                                 
| | Breach of any material representation or warranty of the Company made
 in the subscription agreement or convertible Debenture or in any agreement,
 statement or certificate given in writing shall be false or misleading in any
 material respect as of the date made and the closing Date.                                                                                                                                            
| | The Company or any Subsidiary of Company shall make an assignment for
 the benefit of creditors, or apply for or consent to the appointment of a
 receiver or trustee for them or for a substantial part of their property or
 business; or such a receiver or trustee shall otherwise be appointed.                                                                                                                                     
| | Any money judgment, writ or similar final process shall be entered or
 filed against the Company or any subsidiary of the Company or any of their
 property or other assets for more than $100,000, and shall remain unvacated,
 unbonded or unstayed for a period of forty-five (45) days.                                                                                                                                              
| | The Company shall have received a notice of default, which remains
 uncured for a period of more than twenty (20) business days, on the payment
 of any one or more debts or obligations aggregating in excess of One Hundred
 Thousand Dollars (US $100,000.00) beyond any applicable grace period;                                                                                                                                     
| | Bankruptcy, insolvency, reorganization or liquidation proceedings or
 other proceedings or relief under any bankruptcy law or any law, or the
 issuance of any notice in relation to such event, for the relief of debtors
 shall be instituted by or against the Company or any subsidiary of the
 Company and if instituted against them are not dismissed within sixty (60)
 days of initiation.                                      
| | Failure of the Common Stock to be quoted or listed on the NASDAQ National
 Market System; failure to comply with the requirements for continued listing
 on the Bulletin Board for a period of seven consecutive trading days; or
 notification from the Bulletin Board or the NASDAQ National Market System
 that the Company is not in compliance with the conditions for such continued
 listing on the NASDAQ National Market System.
| | An SEC or judicial stop trade order or a NASDAQ National Market
 System trading suspension with respect to Borrowers Common Stock that lasts
 for five or more consecutive trading days.                                                                                                                                                                                                                                                
| | The Companys failure to timely deliver Common Stock to the note
 holder pursuant to and in the form required by this convertible note or
 subscription agreement, and, if requested by Company, a replacement
 convertible note, and such failure continues for a period of five (5)
 business days after the due date.                                                                                                                 
| | The Company effectuates a reverse split of its Common Stock without
 twenty days prior written notice to the note holder.                                                                                                                                                                                                                                                                                                                
| | A default by the Company of a material term, covenant, warranty or
 undertaking of any agreement to which the Company and note holder are
 parties, or the occurrence of a material event of default under any such
 other agreement which is not cured after any required notice and/or cure
 period.                                                                                                                                   

As of July 31, 2010 the remaining balance of the February 2010
Debentures were $279,313 net of an unamortized discount of $720,687.

The following is a roll forward schedule of our February 2010
Debenture:

|                              |  |                    |           |               |   |            |   |   |         | 
|----------------------------- |  | ------------------ | --------- | ------------- | - | ---------- | - | - | ------- | 
|                              |  | Principal
 Balance |           | Debt Discount |   | Net Debt   |  
|                              |  |                    |           |               |   |            |  
|                              |  |                    |           |               |   |            |   |   |         | 
|Balance, August 1, 2009       |  | $                  |          |               | $ |           |   | $ |        | 
|Debt issuance                 |  |                    | 1,000,000 |               |   | (1,000,000 | ) |   |        | 
|Conversions                   |  |                    |          |               |   |           |   |   |        | 
|Amortization of debt discount |  |                    |          |               |   | 279,313    |   |   | 279,313 | 
|                              |  |                    |           |               |   |            |   |   |         | 
|                              |  |                    |           |               |   |            |   |   |         | 
|Balance, July 31, 2010        |  | $                  | 1,000,000 |               | $ | (720,687   | ) | $ | 279,313 | 
|                              |  |                    |           |               |   |            |   |   |         | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Event of Default                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|On June 23, 2010, the Company received a NASDAQ Staff Deficiency
 Letter stating that the Company no longer complied with the NASDAQ Listing
 Rules (the Listing Rules) for continued listing on The NASDAQ Stock Market
 (NASDAQ) because the Company had not maintained a minimum of $2,500,000 in
 stockholders equity as required by Listing Rule 5550(b)(1), and because the
 Companys Form 10-Q for the period ended April 30, 2010, had not yet been
 reviewed in accordance with Statement of Auditing Standards No. 100, as
 required by Rule 8-03 of Regulation S-X, pursuant to Listing Rule 5250(c)(1).
 Thereafter, on August 2, 2010, the Company received a NASDAQ Staff
 Determination Letter indicating that the Staff had concluded that the Company
 had not solicited proxies or held its annual meeting within the timeframe
 required by Listing Rules 5620(a) and 5620(b) and accordingly, determined to
 initiate procedures to delist the Companys securities from NASDAQ. Finally,
 on August 13, 2010, the Company received a NASDAQ Staff Deficiency Letter
 stating that, as the bid price of the Companys common stock had closed below
 the minimum $1.00 per share requirement set forth in by NASDAQ Listing Rule
 5550(a)(2), and in accordance with Listing Rule 5810(c)(3)(A), the Company
 had been provided 180 calendar days, or until February 9, 2011, to regain
 compliance with that requirement.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|As a result of the NASDAQ Staff Determination Letters, an event of
 default under the February 2010 Debenture occurred. The note holders did not
 exercise their rights upon an event of default and subsequent to the year
 ended July 31, 2010, the Company received a waiver from note holders on
 November 29, 2010. See Note 15, Subsequent Events.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-27

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 10  DERIVATIVE LIABILITIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Embedded Conversion Feature of August 2009 Debentures (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|The August 2009 Debentures contain a provision whereby we have the
 obligation to reduce the conversion price if we offer, issue or agree to
 issue any common stock or securities into or exercisable for shares of common
 stock to any person or entity at a price per share or conversion or exercise
 price per share which is less than the conversion price of the August 2009
 Debentures. Accordingly the embedded conversion feature was accounted for as
 a derivative liability. The Company calculated the fair value of the embedded conversion feature on August
3, 2009 and September 24, 2009 (commitment dates) to be $1,466,538 using the
Black-Scholes option pricing model. The weighted average assumptions used in
computing the fair values are a closing stock price of $1.83, expected
volatility of 117.4% over the remaining contractual life of one year and five
months and a risk free rate of 2.46%. At various times throughout the fiscal
year ended July 31, 2010, the holders of the August 2009 Debentures converted
the full amount of the debentures into common shares of the Companys stock. At
each conversion date the Company marked to market the fair value of the
derivative and reclassified it to additional paid in capital. The amounts
reclassified to additional paid in capital aggregated $1,744,013 and were calculated
using the Black-Scholes option pricing. The weighted average assumptions used
in computing the fair value are a closing stock price of $1.99, expected
volatility of 117.4% over the remaining contractual life of 1 year and a risk
free rate of 2.37%. The fair value of the derivative increased by $277,475
which has been recorded in the statement of operations for the year ended July
31, 2010.

F-28

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|NOTE 10 
 DERIVATIVE LIABILITIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Embedded Conversion Feature of August 2009 Debentures (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|The February 2010 Debentures contain a provision whereby we have the
 obligation to reduce the conversion price if we offer, issue or agree to
 issue any common stock or securities into or exercisable for shares of common
 stock to any person or entity at a price per share or conversion or exercise
 price per share which is less than the conversion price of the February 2010
 Debentures. Accordingly the embedded conversion feature was accounted for as
 a derivative liability. The Company calculated the fair value of the embedded
 conversion feature on February 26, 2010 and March 3, 2010 (commitment dates)
 to be $1,714,462 using the Black-Scholes option pricing model. The weighted
 average assumptions used in computing the fair values are a closing stock
 price of $1.86, expected volatility of 240% over the remaining contractual
 life of one year and six months and a risk free rate of 2.28%. On June 18,
 2010, the February 2010 Debentures were amended whereby the above
 anti-dilution provision was eliminated. As a result the embedded conversion
 feature of the February 2010 Debentures were no longer accounted for as a
 derivative. The Company calculated the fair value of the embedded conversion
 feature on June 18, 2010 using the Black-Scholes option pricing model. The
 weighted average assumptions used in computing the fair value as of June 18,
 2010 are a closing stock price of $1.19, expected volatility of 151.7% over
 the remaining contractual life of one year and two months and a risk free
 rate of 0.30%. The fair value of the derivative at June 18, 2010 was
 $1,032,667 which was reclassified to additional paid in capital. The fair value
 of the derivative decreased by $681,795 which has been recorded in the
 statement of operations for the year ended July 31, 2010.                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|August 2009 Selling Agent Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|In connection with the August 2009 debentures, the Company issued to
 the selling agent, warrants to purchase 256,410 shares of common stock at an
 exercise price of $1.12. Under the terms of the August 2009 Selling Agent
 Warrants we have the obligation to reduce the exercise price if we offer,
 issue or agree to issue any common stock or securities into or exercisable
 for shares of common stock to any person or entity at a price per share or
 conversion or exercise price per share which is less than the exercise price
 of the August 2009 Selling Agent Warrants. Accordingly the warrants were accounted
 for as a derivative liability. The Company calculated the fair value of the
 warrants on August 3, 2009 at $231,025 using the Black-Scholes option pricing
 model. The assumptions used in computing the fair value are a closing stock
 price of $1.14, expected volatility of 108% over the remaining contractual
 life of five years and a risk free rate of 2.66%. On February 3, 2010, the
 holder of the 2009 Selling Agent Warrants exercised their option to exercise
 256,410 warrants. The Company calculated the fair value of the 256,410
 exercised warrants on February 3, 2010 using the Black-Scholes option pricing
 model. The assumptions used in computing the fair value as of February 3,
 2010 are a closing stock price of $2.98, expected volatility of 148.68% over
 the remaining contractual life of four years and six months and a risk free
 rate of 2.40%. The fair value of the derivative at February 3, 2010 was
 $718,230 which was reclassified to additional paid in capital. The fair value
 of the derivative increased by $487,205 which has been recorded in the
 statement of operations for the year ended July 31, 2010.                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|February 2010 Selling Agent Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|In connection with the February 2010 debentures, the Company issued
 to the selling agent, warrants to purchase 256,410 shares of common stock at
 an exercise price of $1.12. Under the terms of the February 2010 Selling
 Agent Warrants we have the obligation to reduce the exercise price if we
 offer, issue or agree to issue any common stock or securities into or
 exercisable for shares of common stock to any person or entity at a price per
 share or conversion or exercise price per share which is less than the
 exercise price of the February 2010 Selling Agent Warrants. Accordingly the
 warrants were accounted for as a derivative liability. The Company calculated
 the fair value of the warrants on February 26, 2010 at $380,256 using the
 Black-Scholes option pricing model. The assumptions used in computing the
 fair value are a closing stock price of $1.98, expected volatility of 108%
 over the remaining contractual life of five years and a risk free rate of
 2.30%. On June 18, 2010, the February 2010 Selling Agent Warrants were
 amended whereby the above anti-dilution provision was eliminated. As a result
 the warrants were no longer accounted for as a derivative. The Company
 calculated the fair value of the 256,410 exercised warrants on June 18, 2010
 using the Black-Scholes option pricing model. The assumptions used in
 computing the fair value as of June 18, 2010 are a closing stock price of
 $1.12, expected volatility of 143.4% over the remaining contractual life of
 four years and eight months and a risk free rate of 2.04%. The fair value of
 the derivative at June 18, 2010 was $271,538 which was reclassified to
 additional paid in capital. The fair value of the derivative decreased by
 $108,717 which has been recorded in the statement of operations for the year
 ended July 31, 2010.

F-29

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|NOTE 10 
 DERIVATIVE LIABILITIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Embedded Conversion Feature of August 2009 Debentures (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Class A Warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|In connection with the August 2009 debentures, the Company issued
 Class A Warrants to purchase 2,564,102 shares of common stock. The warrants
 were issued with an exercise price of $1.12. Under the terms of the Class A
 Warrants we have the obligation to reduce the exercise price if we offer,
 issue or agree to issue any common stock or securities into or exercisable
 for shares of common stock to any person or entity at a price per share or
 conversion or exercise price per share which is less than the exercise price
 of the Class A Warrants. Accordingly the warrants were accounted for as a
 derivative liability. The Company calculated the fair value of the warrants
 on August 3, 2009 at $2,310,256 using the Black-Scholes option pricing model.
 The assumptions used in computing the fair value are a closing stock price of
 $1.14, expected volatility of 108% over the remaining contractual life of
 five years and a risk free rate of 2.66%. At various times during the fiscal
 year ended July 31, 2010, the holder of the Class A warrants exercised their
 option to purchase 635,070 shares of common stock. The Company calculated the
 fair value of the 635,070 exercised warrants to be $918,961 using the
 Black-Scholes option pricing model. The assumptions used in computing the
 fair value are a closing stock price of $1.84, expected volatility 108% over
 the remaining contractual life of four years and six months and a risk free
 rate of 2.47%. The Company reclassified the $918,961 fair value of the
 635,070 warrants to additional paid in capital. On December 29, 2009, the
 exercise price of the remaining 1,929,032 Class A Warrants automatically
 adjusted to $0.01 pursuant to the warrant agreement The reduction in the
 exercise price eliminated the derivative feature associated with the
 remaining 1,929,032 Class A Warrants. The Company calculated the fair value
 of the 1,929,032 Class A Warrants to be $2,723,600 using the Black-Scholes
 option pricing model. The assumptions used in computing the fair value are a
 closing stock price of $1.42, expected volatility of 108% over the remaining
 contractual life of four years and six months and a risk free rate of 2.62%.
 The fair value of the derivative at December 29, 2009 was $2,723,600 which
 was reclassified to additional paid in capital. Additionally, during the year
 ended July 31, 2010, the fair value of the derivative increased by $1,332,305
 which has been recorded in the statement of operations for the year ended
 July 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Class B Warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|In connection with the August 2009 debentures, the Company issued
 Class B Warrants to purchase up to $4,000,000 of principal amount of the
 Companys 8% convertible notes on the same terms as the August 2009
 debentures, upon the exercise of the Class B Warrants, the holder of the
 Class B Warrant will be issued two Class C Warrants for each share of the
 Companys common stock that would be issued on the exercise date of the Class
 B Warrant assuming the full conversion of the notes issued on such date, and
 Class C warrants which entitle the warrant holder to purchase 10,256,408
 shares of the Companys Common Stock with and exercise price equal to the
 lesser of 105% of the closing bid price of the Companys common stock or the
 exercise price of the Class A Warrants. The financial instruments underlying
 the Class B Warrants contain provisions whereby we will have the obligation
 to reduce the exercise price if we offer, issue or agree to issue any common
 stock or securities into or exercisable for shares of common stock to any
 person or entity at a price per share or conversion or exercise price per
 share which is less than the exercise price of the Class C Warrants or
 conversion price of the 8% convertible notes. Accordingly the Class B
 Warrants were accounted for as a derivative liability. The Company calculated
 the fair value of the Class B Warrants on August 3, 2009 at $14,665,698
 consisting of a fair value for the underlying Class C Warrants of $10,369,894
 and a fair value for the underlying embedded conversion feature of the 8%
 convertible notes of $4,295,804. The Company used the Black-Scholes option
 pricing model. The assumptions used in computing the fair value of the Class
 C Warrants are a closing stock price of $1.14, expected volatility of 138.26%
 over the remaining contractual life of five years and a risk free rate of
 2.66%. The assumptions used in computing the fair value of the embedded
 conversion feature of the 8% convertible notes are a closing stock price of
 $1.14, expected volatility 159.87% over the remaining contractual life of one
 year and six months and a risk free rate of 1.18%. On June 18, 2010,
 underlying of the securities of the Class B Warrants were amended whereby the
 above anti-dilution provisions was eliminated. As a result the Class B
 Warrants were no longer accounted for as a derivative. The Company calculated
 the fair value of the Class B Warrants on June 18, 2010 at $11,447,328
 consisting of a fair value for the underlying Class C Warrants of $8,236,542
 and a fair value for the underlying embedded conversion feature of the 8%
 convertible notes of $3,210,786. The Company used the Black-Scholes option
 pricing model. The assumptions used in computing the fair value of the Class
 C Warrants are a closing stock price of $1.19, expected volatility of 143.39%
 over the remaining contractual life of five years and a risk free rate of
 2.04%. The assumptions used in computing the fair value of the embedded
 conversion feature of the 8% convertible notes are a closing stock price of
 $1.19, expected volatility of 151.71% over the remaining contractual life of
 one year and six months and a risk free rate of 0.30%. The fair value of $11,447,328
 was reclassified to additional paid in capital. The fair value of the
 derivative decreased by 3,218,370 which has been recorded in the statement of
 operations for the year ended July 31, 2010.

F-30

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|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONOLOG CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|FOR THE YEARS ENDED JULY 31, 2010 AND 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|NOTE 10 
 DERIVATIVE LIABILITIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Embedded Conversion Feature of August 2009 Debentures (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Class C Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|In connection with the February 2010 debentures, the Company issued
 Class C Warrants to purchase 2,564,102 shares of common stock. The warrants
 were issued with an exercise price of $1.12. Under the terms of the Class C
 Warrants we have the obligation to reduce the exercise price if we offer,
 issue or agree to issue any common stock or securities into or exercisable
 for shares of common stock to any person or entity at a price per share or
 conversion or exercise price per share which is less than the exercise price
 of the Class C Warrants. Accordingly the warrants were accounted for as a
 derivative liability. The Company calculated the fair value of the warrants
 on February 26, 2010 and March 3, 2010 (commitment dates) at $3,974,618 using
 the Black-Scholes option pricing model. The weighted average assumptions used
 in computing the fair value are a closing stock price of $1.86, expected
 volatility of 108% over the remaining contractual life of five years and a
 risk free rate of 2.28%. On June 18, 2010, the Class C Warrants were amended whereby
 the above anti-dilution provision was eliminated. As a result the warrants
 were no longer accounted for as a derivative. The Company calculated the fair
 value of the 2,564,102 Class C warrants on June 18, 2010 using the
 Black-Scholes option pricing model. The weighted average assumptions used in
 computing the fair value as of June 18, 2010 are a closing stock price of
 $1.19, expected volatility of 143.4% over the remaining contractual life of
 four years and eight months and a risk free rate of 2.04%. The fair value of
 the derivative at June 18, 2010 was $2,713,745 which was reclassified to
 additional paid in capital. The fair value of the derivative decreased by
 $1,260,873 which has been recorded in the statement of operations for the
 year ended July 31, 2010.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|The following is a roll forward schedule of
 the Companys derivative liability and components of the embedded conversion
 features:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|----------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | ----------------------------- |  | ----------------------------- | - | ---------------------------------------------- | --------- | ------------------------------- |  | -------------------------- | - | - | --------- | - | - | ----------- | -
|                                                                                    |  | Number
 of
 Class A
 Warrants |            | Number
 of
 Class B
 Warrants |  | Number
 of
 Class C
 Warrants |   | Number
 of
 Warrants
 Issued to
 Selling Agent |           | Face
 Value of
 ConvertibleDebt |  | Total
 DerivativeLiability |  
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |  
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|Balance 8/1/09                                                                      |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   | $ |          |   | $ |            |  
|Granted                                                                             |  |                               | 2,564,102  |                               |  | 40,000                        |   |                                                |          |                                 |  | 256,410                    |   |   |          |   |   | (17,206,979 | )
|Debt Issuance                                                                       |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   | 1,000,000 |   |   | (1,466,538  | )
|Debt Conversion                                                                     |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   | (221,256  | ) |   | 328,395     |  
|Change in Fair Value of Derivative                                                  |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   |          |   |   | (7,107,807  | )
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|Balance 10/31/09                                                                    |  |                               | 2,564,102  |                               |  | 40,000                        |   |                                                |          |                                 |  | 256,410                    |   |   | 778,744   |   |   | (25,452,929 | )
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|Reclassification due to Change in Exercise Price To $0.01 for
 1,929,032 A Warrants |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   |          |   |   | 2,723,600   |  
|Exercised                                                                           |  |                               | (635,070   | )                             |  |                              |   |                                                |          |                                 |  |                           |   |   |          |   |   | 918,961     |  
|Debt Conversion                                                                     |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   | (489,344  | ) |   | 926,993     |  
|                                                                                    |  |                               |            |                               |  |                              |   |                                                |          |                                 |  |                           |   |   |           |   |   |             |  
|Change in Fair Value of Derivative                                                  |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   |          |   |   | (9,178,209  | )
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|Balance 1/31/10                                                                     |  |                               | 1,929,032  |                               |  | 40,000                        |   |                                                |          |                                 |  | 256,410                    |   |   | 289,400   |   |   | (30,061,583 | )
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|Exercise (no impact as these were reduced to $0.01)                                 |  |                               | (1,929,032 | )                             |  |                              |   |                                                |          |                                 |  |                           |   |   |          |   |   |            |  
|Exercise                                                                            |  |                               |           |                               |  | (10,000                       | ) |                                                |          |                                 |  | (256,410                   | ) |   |          |   |   | 718,230     |  
|Debt Issuance                                                                       |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   | 1,000,000 |   |   | (1,714,462  | )
|Debt Conversion                                                                     |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   | (289,400  | ) |   | 488,625     |  
|Granted                                                                             |  |                               |           |                               |  |                              |   |                                                | 2,564,104 |                                 |  | 256,410                    |   |   |          |   |   | (4,354,874  | )
|Change in Fair Value of Derivative                                                  |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   |          |   |   | 13,743,309  |  
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|Balance 4/30/10                                                                     |  |                               |           |                               |  | 30,000                        |   |                                                | 2,564,104 |                                 |  | 256,410                    |   |   | 1,000,000 |   |   | (21,180,755 | )
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|Change in Fair Value of Derivative                                                  |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   |          |   |   | 5,715,478   |  
|Reclassification to APIC                                                            |  |                               |           |                               |  |                              |   |                                                |          |                                 |  |                           |   |   |          |   |   | 15,465,277  |  
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  
|Balance 7/31/10                                                                     |  |                               |           |                               |  | 30,000                        |   |                                                | 2,564,104 |                                 |  | 256,410                    |   | $ | 1,000,000 |   | $ |            |  
|                                                                                    |  |                               |            |                               |  |                               |   |                                                |           |                                 |  |                            |   |   |           |   |   |             |  

F-31

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 10  DERIVATIVE LIABILITIES (continued)

Fair Value Assumptions Used in Accounting for Derivative
Warrant LiabilityThe Company has determined its derivative warrant
liabilities to be a Level 2 fair value measurement and used the Black-Scholes
pricing model to calculate the fair value at the adoption and for the first,
second and third quarters of the fiscal year ended July 31, 2010. Key weighted
average assumptions used in the Black-Scholes fair value calculation were as
follows:

|                          |  |                 |     |                 |  |                   |   |                   |        |   |  |        |  
|------------------------- |  | --------------- | --- | --------------- |  | ----------------- | - | ----------------- | ------ | - |  | ------ | -
|                          |  | July 31,
 2010* |     | April 30,
 2010 |  | January 31,
 2010 |   | October 31,
 2009 |       
|                          |  |                 |     |                 |  |                   |   |                   |       
|                          |  |                 |     |                 |  |                   |   |                   |        |   |  |        |  
|Expected
 term (in years) |  |                 | N/A |                 |  | 3.94              |   |                   | 3.86   |   |  | 3.93   |  
|Volatility                |  |                 | N/A |                 |  | 143.34            | % |                   | 150.82 | % |  | 141.71 | %
|Risk-free
 interest rate  |  |                 | N/A |                 |  | 2.10              | % |                   | 1.88   | % |  | 1.96   | %
|Dividend
 yield           |  |                 | N/A |                 |  | 0.00              | % |                   | 0.00   | % |  | 0.00   | %

* Inputs are
not applicable as there are no derivative liabilities outstanding at July 31,
2010.

NOTE 11 - MAJOR CUSTOMERS

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

|           |  |                |           |                           |   |                      |  |                      |  |  |      |   | 
|---------- |  | -------------- | --------- | ------------------------- | - | -------------------- |  | -------------------- |  |  | ---- | - | 
|Year Ended |  | Total
 Revenue |           | Sales to Major
 Customers |   | Number of
 Customers |  | Percentage of
 Total | 
|           |  |                |           |                           |   |                      |  |                      | 
|2010       |  | $              | 1,178,673 |                           | $ | 509,796              |  | 2                    |  |  | 43.3 | %
|2009       |  | $              | 1,485,298 |                           | $ | 824,097              |  | 2                    |  |  | 55.5 | %

NOTE 12  STOCK-BASED COMPENSATION

2002 Stock Option Plan

On April 23, 2002, the Board of Directors of the Company adopted the
2002 Stock Option Plan (the 2002 Plan). Under the 2002 Plan, the Company may
grant up to 158 shares of common stock as either incentive stock options under
Section 422A of the Internal Revenue Code or nonqualified stock options.
Subject to the terms of the 2002 Plan, options may be granted to eligible
persons at any time and under such terms and conditions as determined by the
2002 Stock Option Committee (the Committee). Unless otherwise determined by
the Committee, each stock option shall terminate no later than ten years (or
such shorter time as may be fixed by the Committee) after the date in which it
was granted. The exercise price for incentive stock options must be at least
one hundred percent (100%) of the fair market value of common stock as
determined on the date of the grant. The exercise price for nonqualified stock
options may not be granted at less than eighty-five percent (85%) of the fair
market value of the shares on the date of grant.

As of July 31,
2010 and 2009, there had been no shares granted under the 2002 Plan.

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.

F-32

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 12  STOCK-BASED COMPENSATION (continued)

Stock Inventive Plans (continued)


Pursuant to the Corporations 2009 Stock Incentive Plan, 800,000 common
shares of Company stock were issued to current officers, directors employees
and consultants. These shares were recorded at a value of $1,536,000 for the
fiscal year ended July 31, 2010. The shares are fully vested and non-cancelable
when granted, therefore the entire amount of stock grant compensation expense
was recognized at the date the shares were authorized by the board of directors
to be granted.


Securities Issued for Services

During fiscal year July 31, 2010, the Company issued a total of 265,000
shares of common stock to non-employees for services rendered during the year
or to be rendered in future periods. These services were valued at $508,800.
Services to be performed beyond fiscal year 2010, will be amortized and
expensed to general and administrative expenses. The unamortized amount of
prepaid services at July 31, 2010 is $80,000.

During fiscal year July 31, 2009, the Company issued 25,000 shares of
common stock to non-employees for services rendered during the year or to be
rendered in future periods. These services were valued at $47,685 and expensed
during the year ended July 31, 2009.

These services were valued at their fair value of consideration
received at the date of the agreement in accordance with ASC 505 Accounting
Recognition for Certain Transactions Involving Equity Instruments Granted to
Other Than Employees.

NOTE 13  CONTINGENCIES

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

On March 13, 2007, Meyers Associates, L.P. commenced an action against
Conolog Corporation, asserting that: (1) Conolog breached a purported contract
it had with Meyers pursuant to which it claims Meyers was to act as lead
underwriter in connection with a Regulation D securities offering for Conolog,
and (2) Conolog misappropriated a purported confidential list of potential investors.
Conolog denies the allegations in the complaint and intends to vigorously
defend against Meyerss claims. On May 7, 2009, The Supreme Court of New York
issued a Stipulation of Dismissal, dismissing all claims asserted by Meyers
Associates, with prejudice. No appeal has been filed by Meyers Associates, L.P.

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

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

F-33

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 14  COMMITMENTS

Total rental expense for all operating leases of the Company amounted
to approximately $53,540 and $51,400 during the years ended July 31, 2010 and
2009, respectively. The Company currently leases its facilities on a
month-to-month basis.

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 July 31, 2010 was
$417,300 (actual 2010 salary drawn was $259,749 with the difference of $157,551
forgiven by the Chief Executive Officer) 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.

The Companys President and Chief Operating 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 employee. His annual base salary as of July 31, 2010 was $238,200
and he receives annual increases of $12,000 on January 1st of each
year. The Companys President and Chief Operating Officer is entitled to an
annual bonus equal to 3% of the Companys annual income before income tax
provision as stated in its annual Form 10-K. The employment agreement also
entitles 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.

NOTE 15 - 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 June 23, 2010, the Company received a NASDAQ Staff Deficiency Letter
stating that the Company no longer complied with the NASDAQ Listing Rules (the
Listing Rules) for continued listing on The NASDAQ Stock Market (NASDAQ)
because the Company had not maintained a minimum of $2,500,000 in stockholders
equity as required by Listing Rule 5550(b)(1), and because the Companys Form
10-Q for the period ended April 30, 2010, had not yet been reviewed in
accordance with Statement of Auditing Standards No. 100, as required by Rule
8-03 of Regulation S-X, pursuant to Listing Rule 5250(c)(1). Thereafter, on
August 2, 2010, the Company received a NASDAQ Staff Determination Letter
indicating that the Staff had concluded that the Company had not solicited
proxies or held its annual meeting within the timeframe required by Listing
Rules 5620(a) and 5620(b) and accordingly, determined to initiate procedures to
delist the Companys securities from NASDAQ. Finally, on August 13, 2010, the
Company received a NASDAQ Staff Deficiency Letter stating that, as the bid
price of the Companys common stock had closed below the minimum $1.00 per
share requirement set forth in by NASDAQ Listing Rule 5550(a)(2), and in
accordance with Listing Rule 5810(c)(3)(A), the Company had been provided 180
calendar days, or until February 9, 2011, to regain compliance with that
requirement.

On September 15, 2010, the Company attended a hearing before the NASDAQ
Listing Qualifications Panel (the Panel) to present its plan to evidence
compliance with all applicable Listing Rules and to request an extension of
time within which to do so. By decisions dated October 19, 2010, November 3,
2010, and November 23, 2010, the Panel determined to continue the Companys
listing on NASDAQ, subject to certain conditions. The Companys continued
listing on NASDAQ is conditioned upon the Company becoming current in its SEC
reporting obligations by November 30, 2010, evidencing compliance with the
minimum $2.5 million stockholders equity requirement, as well as its ability
to sustain compliance with that requirement, by December 31, 2010, and
soliciting proxy statements and holding the 2010 annual meeting of stockholders
by January 14, 2011, among other things. The Company is continuing to work
toward regaining compliance with all of the applicable Listing Rules as required
by the Panel decision; however, if it is unable to do so, the Companys
securities may be delisted from NASDAQ.

F-34

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 15 - SUBSEQUENT EVENTS (continued)

In the event the Companys securities are delisted from NASDAQ, the
Companys securities are immediately eligible for quotation on the OTCQB, which
is operated by Pink OTC Markets Inc., an electronic quotation service for securities
traded over-the-counter. The Companys securities are also eligible for
quotation on the Over-the-Counter Bulletin Board, an electronic quotation
service maintained by the Financial Industry Regulatory Authority (FINRA),
provided that a market maker in the Companys common stock files the
appropriate application with, and such application is cleared by, FINRA.

As a result of the NASDAQ Staff Determination Letter, an event of
default under the February 2010 Debenture occurred. The note holder did not
exercise their rights upon an event of default and on November 27, 2010 the
Company received a waiver from note holders. Pursuant to the waiver, the note
holders waived any event of default (as defined in the Notes pursuant to
Article IV Section 4.8, Events of Default) including any increase in the
interest rate of the Notes which may have occurred and which may occur from the
date of the inception of the agreement until July 31, 2011, as a result of
notification from the NASDAQ that the Company is not in compliance with the
conditions for such continued listing. The waiver will not be in effect if the
Company is delisted from the NASDAQ stock market subsequent to November 30,
2010.

On September 29, 2010 the Company received a subpoena from the Securities and Exchange Commission (the Commission) in connection with an investigation of possible securities law
violations by the Company that is a non-public, fact finding inquiry, which as noted by the Commission should not be construed as an indication by the Commission or its staff that any violation of the law has occurred or as an adverse reflection
upon any person, entity or security. The Company has responded to the subpoena and has not received further correspondence from the Commission with respect to the subpoena as of the date of this filing. At this time it is not possible to predict the
outcome of the investigation or its impact on Company.

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS

We have restated our unaudited condensed consolidated financial
statements on a quarterly basis for our fiscal yeasr ended July 31, 2010 and
2009. The restatement reflects the adjustments detailed in the restated July
31, 2009 financial statements (see Note 3). Below are the adjustments to the
Consolidated Balance Sheet and Consolidated Statement of Operations as
previously reported and as restated.

|                                                      |  |            |             |             |  |             |  
|----------------------------------------------------- |  | ---------- | ----------- | ----------- |  | ----------- | -
|                                                      |  | Previously |             |             |  |            
|Balance sheet at 10/31/2009                           |  | Reported   |             | As Restated | 
|                                                      |  |            |             |             | 
|Cash                                                  |  |            | 465,744     |             |  | 465,742     |  
|Note
 receivable                                      |  |            | 14,864      |             |  |            |  
|Inventory                                             |  |            | 1,392,106   |             |  | 525,119     |  
|Other
 current assets                                 |  |            | 328,546     |             |  | 12,116      |  
|Current
 assets                                       |  |            | 2,851,204   |             |  | 1,652,921   |  
|Property and
 Equipment, net accumulated depreciation |  |            | 424,764     |             |  | 118,129     |  
|Other non-current
 assets                             |  |            | 230,506     |             |  |            |  
|Deferred
 financing fees, net of amortization         |  |            | 116,667     |             |  | 258,295     |  
|Note
 receivable, net of current portion              |  |            | 68,239      |             |  |            |  
|Total other
 assets                                   |  |            | 415,412     |             |  | 258,295     |  
|Total Assets                                          |  |            | 3,691,380   |             |  | 2,029,345   |  
|Accounts
 payable                                     |  |            | 139,506     |             |  | 139,586     |  
|Accrued
 expenses                                     |  |            | 6,664       |             |  | 67,664      |  
|Derivative
 liability                                 |  |            | 4,273,886   |             |  | 25,452,930  |  
|Current
 Convertible debenture, net of discount       |  |            |            |             |  | 83,840      |  
|Total
 current liabilities                            |  |            | 4,420,056   |             |  | 25,744,020  |  
|Convertible
 debenture, net of discount               |  |            | 83,840      |             |  |            |  
|Total
 liabilities                                    |  |            | 4,503,896   |             |  | 25,744,020  |  
|Common stock                                          |  |            | 23,808      |             |  | 31,808      |  
|Contributed
 capital                                  |  |            | 53,389,291  |             |  | 54,753,542  |  
|Accumulated
 deficit                                  |  |            | (54,171,978 | )           |  | (78,446,388 | )
|Total Equity                                          |  |            | (812,516    | )           |  | (23,714,675 | )
|Total
 Liabilities and Stockholders Equity           |  |            | 3,691,380   |             |  | 2,029,345   |  

F-35

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS(continued)

|                                                      |  |            |             |             |  |             |  
|----------------------------------------------------- |  | ---------- | ----------- | ----------- |  | ----------- | -
|                                                      |  | Previously |             |             |  |            
|Balance sheet at 1/31/2010                            |  | reported   |             | As Restated | 
|                                                      |  |            |             |             | 
|Note
 receivable                                      |  |            | 14,864      |             |  |            |  
|Inventory                                             |  |            | 1,484,351   |             |  | 627,454     |  
|Other
 current assets                                 |  |            | 328,546     |             |  | 5,000       |  
|Current
 assets                                       |  |            | 2,979,791   |             |  | 1,784,484   |  
|                                                      |  |            |             |             |  |             |  
|Property and
 Equipment, net accumulated depreciation |  |            | 420,765     |             |  | 114,128     |  
|Other
 non-current assets                             |  |            | 223,411     |             |  |            |  
|Deferred
 financing fees, net of amortization         |  |            | 134,539     |             |  | 187,282     |  
|Note
 receivable, net of current portion              |  |            | 68,239      |             |  |            |  
|Total other
 assets                                   |  |            | 426,189     |             |  | 187,282     |  
|Total Assets                                          |  |            | 3,826,745   |             |  | 2,085,894   |  
|                                                      |  |            |             |             |  |             |  
|Accounts
 payable                                     |  |            | 117,875     |             |  | 117,955     |  
|Accrued
 expenses                                     |  |            | 10,097      |             |  | 71,098      |  
|Derivative
 liability                                 |  |            | 557,466     |             |  | 30,061,584  |  
|                                                      |  |            |             |             |  |             |  
|Current
 Convertible debenture, net of discount       |  |            |            |             |  | 45,132      |  
|Total
 current liabilities                            |  |            | 685,438     |             |  | 30,295,769  |  
|Convertible
 debenture, net of discount               |  |            | 45,132      |             |  |            |  
|Total
 liabilities                                    |  |            | 730,570     |             |  | 30,295,769  |  
|                                                      |  |            |             |             |  |             |  
|Contributed
 capital                                  |  |            | 60,705,267  |             |  | 60,573,015  |  
|Accumulated
 deficit                                  |  |            | (57,600,143 | )           |  | (88,774,444 | )
|Total Equity                                          |  |            | 3,096,175   |             |  | (28,209,875 | )
|Total
 Liabilities and Stockholders Equity           |  |            | 3,826,745   |             |  | 2,085,894   |  

F-36

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS (continued)

|                                                      |  |            |             |             |  |             |  
|----------------------------------------------------- |  | ---------- | ----------- | ----------- |  | ----------- | -
|                                                      |  | Previously |             |             |  |            
|Balance sheet at 4/30/2010                            |  | Reported   |             | As Restated | 
|                                                      |  |            |             |             | 
|Prepaid
 expenses                                     |  |            | 435,651     |             |  | 352,318     |  
|Inventory                                             |  |            | 700,000     |             |  | 607,350     |  
|Current
 assets                                       |  |            | 2,650,075   |             |  | 2,474,092   |  
|                                                      |  |            |             |             |  |             |  
|Property and
 Equipment, net accumulated depreciation |  |            | 360,775     |             |  | 111,287     |  
|Non-Current
 Inventory                                |  |            | 547,721     |             |  |            |  
|Deferred
 financing fees, net of amortization         |  |            | 51,507      |             |  | 467,868     |  
|Other non
 current assets                             |  |            | 262,235     |             |  |            |  
|Note
 receivable, net of current portion              |  |            | 83,103      |             |  |            |  
|Total other
 assets                                   |  |            | 944,565     |             |  | 467,868     |  
|Total Assets                                          |  |            | 3,955,415   |             |  | 3,053,247   |  
|Accrued
 expenses                                     |  |            | 47,334      |             |  | 246,334     |  
|Derivative
 liability                                 |  |            | 20,847,678  |             |  | 21,180,755  |  
|Total
 current liabilities                            |  |            | 21,076,694  |             |  | 21,608,771  |  
|Convertible
 debenture, net of discount               |  |            | 355,634     |             |  | 111,367     |  
|Total
 liabilities                                    |  |            | 21,432,328  |             |  | 21,720,138  |  
|Contributed
 capital                                  |  |            | 61,471,520  |             |  | 62,058,001  |  
|Accumulated
 deficit                                  |  |            | (78,964,475 | )           |  | (80,740,934 | )
|Total Equity                                          |  |            | (17,476,913 | )           |  | (18,666,891 | )
|Total
 Liabilities and Stockholders Equity           |  |            | 3,955,415   |             |  | 3,053,247   |  

F-37

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS(continued)

|                                                                         |  |                                                    |            |          |  |             |  
|------------------------------------------------------------------------ |  | -------------------------------------------------- | ---------- | -------- |  | ----------- | -
|Condensed
Statement of Operations                                        |  | For the Three Month Period
 Ended October 31, 2009 |           
|                                                                         |  | Previously
 reported                               |            | Restated | 
|                                                                         |  |                                                    |            |          | 
|                                                                         |  |                                                    |            |          |  |             |  
|Total Cost of product revenue                                            |  |                                                    | 196,884    |          |  | 256,200     |  
|Gross Profit (Loss) from Operations                                      |  |                                                    | 271,213    |          |  | 211,896     |  
|General and administrative                                               |  |                                                    | 1,230,381  |          |  | 2,087,853   |  
|Research and development                                                 |  |                                                    |           |          |  | 30,848      |  
|Selling expenses                                                         |  |                                                    | 59,276     |          |  | 38,803      |  
|Total operating expenses                                                 |  |                                                    | 1,289,657  |          |  | 2,157,504   |  
|Loss Before Other Income (Expenses)                                      |  |                                                    | (1,018,444 | )        |  | (1,945,608  | )
|Loss on derivative financial instrument                                  |  |                                                    |           |          |  | 24,550,300  |  
|Interest expense                                                         |  |                                                    | (3,088,324 | )        |  |            |  
|Interest income                                                          |  |                                                    | 860        |          |  | 860         |  
|Interest expense                                                         |  |                                                    |           |          |  | 6,433       |  
|Changes in fair market value of derivatives                              |  |                                                    | (825,487   | )        |  |            |  
|Induced conversion cost                                                  |  |                                                    | (31,208    | )        |  | (31,208     | )
|Amortization of deferred financing fees                                  |  |                                                    | (35,411    | )        |  | (116,461    | )
|Amortization of deferred loan discount                                   |  |                                                    |           |          |  | (305,097    | )
|Total Other Income (Expense)                                             |  |                                                    | (3,979,570 | )        |  | (25,008,639 | )
|Loss before provision for income taxes                                   |  |                                                    | (4,998,014 | )        |  | (26,954,247 | )
|Provision for income taxes                                               |  |                                                    |           |          |  | (4,957      | )
|Net loss                                                                 |  |                                                    | (4,998,014 | )        |  | (26,959,204 | )
|Preferred stock dividends                                                |  |                                                    | (1,045     | )        |  |            |  
|NET LOSS APPLICABLE TO COMMON SHARES                                     |  |                                                    | (4,999,059 | )        |  | (26,959,204 | )
|NET LOSS PER BASIC COMMON SHARE                                          |  |                                                    | (2.32      | )        |  | (12.49      | )
|NET LOSS PER DILUTED COMMON SHARE                                        |  |                                                    |           |          |  |            |  
|                                                                         |  |                                                    |            |          |  |             |  
|WEIGHTED AVERAGE NUMBER OF COMMONSHARES OUTSTANDING  Basic and
 Diluted |  |                                                    | 2,158,540  |          |  | 1,963,878   |  

F-38

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS(continued)

|                                                      |  |                                                     |            |                                                   |  |                      |   |              |            |   |  |             |  
|----------------------------------------------------- |  | --------------------------------------------------- | ---------- | ------------------------------------------------- |  | -------------------- | - | ------------ | ---------- | - |  | ----------- | -
|Period ending January 31, 2010                        |  | For the
 Three Month Period Ended
 January 31, 2010 |            | For the
 Six Month Period Ended
 January 31, 2010 | 
|                                                      |  | Previously
 Reported                                |            | As
 Restated                                      |  | Previously
 Reported |   | As
 Restated |           
|                                                      |  |                                                     |            |                                                   |  |                      |   |              |           
|Total Cost of product revenue                         |  |                                                     | 97,107     |                                                   |  | 87,038               |   |              | 293,990    |   |  | 343,237     |  
|Gross Profit (Loss) from Operations                   |  |                                                     | 14,813     |                                                   |  | 24,882               |   |              | 286,026    |   |  | 236,779     |  
|General and administrative                            |  |                                                     | 2,196,630  |                                                   |  | 417,547              |   |              | 3,069,966  |   |  | 2,505,400   |  
|Research and development                              |  |                                                     | 30,915     |                                                   |  | 30,915               |   |              | 51,323     |   |  | 61,763      |  
|Selling expenses                                      |  |                                                     | 76,416     |                                                   |  | 4,005                |   |              | 135,962    |   |  | 42,808      |  
|Total operating expenses                              |  |                                                     | 2,303,961  |                                                   |  | 452,467              |   |              | 3,257,251  |   |  | 2,609,971   |  
|Loss Before Other Income (Expenses)                   |  |                                                     | (2,289,148 | )                                                 |  | (427,585             | ) |              | (2,971,225 | ) |  | (2,373,192  | )
|Loss on derivative financial instrument               |  |                                                     |           |                                                   |  | (9,178,209           | ) |              |           |   |  | (33,728,508 | )
|Interest Expense                                      |  |                                                     | (470,531   | )                                                 |  | (3,672               | ) |              | (3,558,855 | ) |  | (10,106     | )
|Interest income                                       |  |                                                     | 556        |                                                   |  | 556                  |   |              | 1,416      |   |  | 1,416       |  
|Changes in fair market value of derivatives           |  |                                                     | (853,134   | )                                                 |  |                     |   |              | (1,678,621 | ) |  |            |  
|Induced conversion cost                               |  |                                                     | (118,993   | )                                                 |  | (118,993             | ) |              | (150,201   | ) |  | (150,201    | )
|Amortization of deferred financing fees               |  |                                                     | (33,634    | )                                                 |  | (148,748             | ) |              | (69,045    | ) |  | (265,209    | )
|Amortization of deferred loan discount                |  |                                                     |           |                                                   |  | (450,636             | ) |              |           |   |  | (755,733    | )
|Total Other Income (Expense)                          |  |                                                     | (1,475,736 | )                                                 |  | (9,899,702           | ) |              | (5,455,306 | ) |  | (34,908,341 | )
|Loss before provision for income taxes                |  |                                                     | (3,764,884 | )                                                 |  | (10,323,287          | ) |              | (8,426,531 | ) |  | (37,287,534 | )
|Provision for income taxes                            |  |                                                     |           |                                                   |  | (770                 | ) |              |           |   |  | (5,727      | )
|Net loss                                              |  |                                                     | (3,764,884 | )                                                 |  | (10,328,057          | ) |              | (8,426,531 | ) |  | (37,287,261 | )
|Preferred stock dividends                             |  |                                                     | (1,045     | )                                                 |  |                     |   |              | (2,090     | ) |  |            |  
|NET LOSS APPLICABLE TO COMMON SHARES                  |  |                                                     | (3,765,929 | )                                                 |  | (10,328,057          | ) |              | (8,428,621 | ) |  | (37,287,261 | )
|                                                      |  |                                                     |            |                                                   |  |                      |   |              |            |   |  |             |  
|NET LOSS PER BASIC COMMON SHARE                       |  |                                                     | (0.99      | )                                                 |  | (4.78                | ) |              | (2.93      | ) |  | (12.95      | )
|NET LOSS PER DILUTED COMMON SHARE                     |  |                                                     |           |                                                   |  |                     |   |              |           |   |  |            |  
|                                                      |  |                                                     |            |                                                   |  |                      |   |              |            |   |  |             |  
|WEIGHTED AVERAGE NUMBER OF COMMONSHARES OUTSTANDING - |  |                                                     | 3,798,852  |                                                   |  | 3,091,053            |   |              | 2,879,293  |   |  | 2,527,691   |  

F-39

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS(continued)

|                                                |  |                                                   |            |                                                  |  |                      |   |              |             |   |  |             |  
|----------------------------------------------- |  | ------------------------------------------------- | ---------- | ------------------------------------------------ |  | -------------------- | - | ------------ | ----------- | - |  | ----------- | -
|Period
 ending April 30, 2010                   |  | For the
 Three Month Period
 Ended April 30, 2010 |            | For the
 Nine Month Period
 Ended April 30, 2010 | 
|                                                |  |                                                   |           
|                                                |  | Previously
 Reported                              |            | As
 Restated                                     |  | Previously
 Reported |   | As
 Restated |            
|                                                |  |                                                   |            |                                                  |  |                      |   |              |            
|Total Cost of product revenue                   |  |                                                   | 220,403    |                                                  |  | 278,412              |   |              | 514,394     |   |  | 621,649     |  
|Gross Profit (Loss) from Operations             |  |                                                   | 295,494    |                                                  |  | 237,485              |   |              | 581,519     |   |  | 474,264     |  
|General and administrative                      |  |                                                   | 849,894    |                                                  |  | 812,242              |   |              | 3,434,412   |   |  | 3,317,642   |  
|Research and development                        |  |                                                   |           |                                                  |  | 21,900               |   |              |            |   |  | 83,663      |  
|Selling expenses                                |  |                                                   |           |                                                  |  | 6,613                |   |              |            |   |  | 49,421      |  
|Total operating expenses                        |  |                                                   | 849,894    |                                                  |  | 840,755              |   |              | 3,434,412   |   |  | 3,450,726   |  
|Loss Before Other Income (Expenses)             |  |                                                   | (554,400   | )                                                |  | (603,270             | ) |              | (2,852,893  | ) |  | (2,976,462  | )
|Loss on derivative financial instrument         |  |                                                   |           |                                                  |  | (9,054,229           | ) |              | (22,415,385 | ) |  | (24,674,281 | )
|Interest income                                 |  |                                                   | 1,244      |                                                  |  | (1,416               | ) |              | 2,661       |   |  |            |  
|Interest Expense                                |  |                                                   | (4,946,564 | )                                                |  | (23,431              | ) |              |            |   |  | (33,537     | )
|Changes in fair market value of derivatives     |  |                                                   | 13,965,643 |                                                  |  |                     |   |              | (2,102,682  | ) |  |            |  
|Other income                                    |  |                                                   |           |                                                  |  |                     |   |              | 284,703     |   |  |            |  
|Induced conversion cost                         |  |                                                   |           |                                                  |  |                     |   |              | (150,201    | ) |  | (150,201    | )
|Amortization of deferred loan discount          |  |                                                   | (438,666   | )                                                |  | (355,634             | ) |              | (1,263,444  | ) |  | (1,111,367  | )
|Amortization of deferred financing fees         |  |                                                   |           |                                                  |  | (180,048             | ) |              |            |   |  | (445,257    | )
|Total Other Income (Expense)                    |  |                                                   | 8,581,657  |                                                  |  | 8,493,700            |   |              | (25,644,348 | ) |  | (26,414,643 | )
|Income (Loss) before provision for income taxes |  |                                                   | 8,027,257  |                                                  |  | 7,890,430            |   |              | (28,497,241 | ) |  | (29,391,104 | )
|Provision for income tax benefit                |  |                                                   |           |                                                  |  | 143,080              |   |              |            |   |  | 137,354     |  
|Net income (loss)                               |  |                                                   | 8,027,257  |                                                  |  | 8,033,510            |   |              | (28,497,241 | ) |  | (29,253,750 | )
|Preferred stock dividends                       |  |                                                   | 1,045      |                                                  |  |                     |   |              | (3,135      | ) |  |            |  
|NET INCOME (LOSS) APPLICABLE TO COMMON SHARES   |  |                                                   | 8,026,212  |                                                  |  | 8,033,510            |   |              | (28,500,376 | ) |  | (29,253,750 | )
|NET INCOME (LOSS) PER BASIC COMMON SHARE        |  |                                                   | 1.22       |                                                  |  | 1.21                 |   |              | (7.24       | ) |  | (7.56       | )
|NET INCOME (LOSS) PER DILUTED COMMON SHARE      |  |                                                   | 0.47       |                                                  |  | 0.89                 |   |              | (7.24       | ) |  | (7.56       | )
|                                                |  |                                                   |            |                                                  |  |                      |   |              |             |   |  |             |  
|WEIGHTED AVERAGE NUMBER OF COMMON               |  |                                                   |            |                                                  |  |                      |   |              |             |   |  |             |  
|SHARES OUTSTANDING - BASIC                      |  |                                                   | 6,596,113  |                                                  |  | 6,642,147            |   |              | 3,938,957   |   |  | 3,869,034   |  
|SHARES OUTSTANDING - ASSUMING DILUTIVE          |  |                                                   | 17,068,624 |                                                  |  | 8,871,307            |   |              |            |   |  |            |  

F-40

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS(continued)

Restatements
for 2009 unaudited quarterly condensed balance sheet and condensed statement of
operations:

|                                                |  |                      |             |              |  |             |  
|----------------------------------------------- |  | -------------------- | ----------- | ------------ |  | ----------- | -
|                                                |  | Previously
 reported |             | As
 Restated | 
|                                                |  |                      |             |              | 
|Balance Sheet at October 31, 2008               |  |                      |             |              |  |             |  
|                                                |  |                      |             |              |  |             |  
|Note receivable                                 |  |                      | 14,864      |              |  |            |  
|                                                |  |                      |             |              |  |             |  
|Inventory                                       |  |                      | 977,148     |              |  | 373,108     |  
|                                                |  |                      |             |              |  |             |  
|Other current assets                            |  |                      | 578,958     |              |  | 10,429      |  
|                                                |  |                      |             |              |  |             |  
|Current assets                                  |  |                      | 2,877,703   |              |  | 1,710,160   |  
|                                                |  |                      |             |              |  |             |  
|Deferred financing fees,
 net of amortization   |  |                      | 177,018     |              |  | 65,200      |  
|                                                |  |                      |             |              |  |             |  
|Note receivable, net of
 current portion        |  |                      | 75,545      |              |  | 90,410      |  
|                                                |  |                      |             |              |  |             |  
|Total other assets                              |  |                      | 252,563     |              |  | 155,610     |  
|                                                |  |                      |             |              |  |             |  
|Total Assets                                    |  |                      | 3,235,101   |              |  | 1,970,605   |  
|                                                |  |                      |             |              |  |             |  
|Current Convertible
 debenture, net of discount |  |                      | 575,573     |              |  | 566,724     |  
|                                                |  |                      |             |              |  |             |  
|Total current liabilities                       |  |                      | 727,853     |              |  | 719,004     |  
|                                                |  |                      |             |              |  |             |  
|Total liabilities                               |  |                      | 727,853     |              |  | 719,004     |  
|                                                |  |                      |             |              |  |             |  
|Common stock                                    |  |                      | 34,927      |              |  | 35,104      |  
|                                                |  |                      |             |              |  |             |  
|Contributed capital                             |  |                      | 50,529,742  |              |  | 51,184,050  |  
|                                                |  |                      |             |              |  |             |  
|Accumulated deficit                             |  |                      | (47,379,784 | )            |  | (49,913,916 | )
|                                                |  |                      |             |              |  |             |  
|Deferred compensation                           |  |                      | (604,110    | )            |  |            |  
|                                                |  |                      |             |              |  |             |  
|Total Equity                                    |  |                      | 2,507,248   |              |  | 1,251,601   |  
|                                                |  |                      |             |              |  |             |  
|Total Liabilities and
 stockholders equity     |  |                      | 3,235,101   |              |  | 1,970,605   |  

F-41

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS(continued)

|                                              |  |                      |             |              |  |             |  
|--------------------------------------------- |  | -------------------- | ----------- | ------------ |  | ----------- | -
|Balance Sheet at January 31, 2009             |  | Previously
 Reported |             | As
 Restated | 
|                                              |  |                      |             |              | 
|Note receivable                               |  |                      | 14,864      |              |  |            |  
|Inventory                                     |  |                      | 1,087,055   |              |  | 398,127     |  
|Other current assets                          |  |                      | 551,937     |              |  | 5,000       |  
|Current assets                                |  |                      | 3,055,620   |              |  | 1,804,891   |  
|Deferred financing fees,
 net of amortization |  |                      | 59,006      |              |  | 16,058      |  
|Note receivable, net of
 current portion      |  |                      | 73,062      |              |  | 87,926      |  
|Total other assets                            |  |                      | 132,068     |              |  | 103,984     |  
|Total Assets                                  |  |                      | 3,292,523   |              |  | 2,013,710   |  
|Common Stock                                  |  |                      | 28,823      |              |  | 28,827      |  
|Contributed capital                           |  |                      | 50,039,403  |              |  | 51,280,097  |  
|Accumulated deficit                           |  |                      | (47,485,855 | )            |  | (50,005,367 | )
|Total Equity                                  |  |                      | 2,528,734   |              |  | 1,249,920   |  
|Total Liabilities and
 stockholders equity   |  |                      | 3,292,523   |              |  | 2,013,710   |  

|                                              |  |                      |             |              |  |             |  
|--------------------------------------------- |  | -------------------- | ----------- | ------------ |  | ----------- | -
|Balance Sheet at April 30, 2009               |  | Previously
 Reported |             | As
 Restated | 
|                                              |  |                      |             |              | 
|Prepaid expenses                              |  |                      | 223,589     |              |  | 28,641      |  
|Inventory                                     |  |                      | 1,191,706   |              |  | 415,096     |  
|Note receivable                               |  |                      | 14,864      |              |  |            |  
|Other current assets                          |  |                      | 551,937     |              |  | 5,000       |  
|Current assets                                |  |                      | 2,570,858   |              |  | 1,037,499   |  
|Deferred financing fees,
 net of amortization |  |                      | 33,726      |              |  |            |  
|Note receivable, net of
 current portion      |  |                      | 69,846      |              |  | 84,710      |  
|Total other assets                            |  |                      | 103,572     |              |  | 84,710      |  
|Total Assets                                  |  |                      | 2,775,265   |              |  | 1,223,044   |  
|Accrued expenses                              |  |                      |            |              |  | 38,000      |  
|Total current liabilities                     |  |                      | 405,483     |              |  | 443,483     |  
|Total liabilities                             |  |                      | 405,483     |              |  | 443,483     |  
|Common stock                                  |  |                      | 15,155      |              |  | 15,166      |  
|Contributed capital                           |  |                      | 51,877,016  |              |  | 51,724,554  |  
|Accumulated deficit                           |  |                      | (48,606,916 | )            |  | (50,906,522 | )
|Deferred Compensation                         |  |                      | (861,836    | )            |  |            |  
|Total Equity                                  |  |                      | 2,369,782   |              |  | 779,561     |  
|Total
 Liabilities and stockholders equity   |  |                      | 2,775,265   |              |  | 1,223,044   |  

F-42

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS(continued)

|                                                     |  |                                                     |           |             |  |           |  
|---------------------------------------------------- |  | --------------------------------------------------- | --------- | ----------- |  | --------- | -
|Condensed Statement of Operations                    |  | For the Three Month
 Period Ended October 31,
 2008 |          
|Period ending October 31, 2008                       |  | Previously
 reported                                |           | As Restated | 
|                                                     |  |                                                     |           |             |  |           |  
|                                                    
|Total Cost
 of product revenue                       |  |                                                     | 104,305   |             |  | 248,903   |  
|                                                     |  |                                                     |           |             |  |           |  
|Gross Profit
 (Loss) from Operations                 |  |                                                     | 352,376   |             |  | 207,777   |  
|                                                     |  |                                                     |           |             |  |           |  
|General and
 administrative                          |  |                                                     | 519,144   |             |  | 499,248   |  
|                                                     |  |                                                     |           |             |  |           |  
|Selling
 expenses                                    |  |                                                     |          |             |  | 19,894    |  
|                                                     |  |                                                     |           |             |  |           |  
|Total
 operating expenses                            |  |                                                     | 519,144   |             |  | 519,142   |  
|                                                     |  |                                                     |           |             |  |           |  
|Loss Before
 Other Income (Expenses)                 |  |                                                     | (166,768  | )           |  | (311,365  | )
|                                                     |  |                                                     |           |             |  |           |  
|Interest
 expense                                    |  |                                                     | (55,134   | )           |  | (55,134   | )
|                                                     |  |                                                     |           |             |  |           |  
|Interest
 income                                     |  |                                                     | 11,329    |             |  | 11,329    |  
|                                                     |  |                                                     |           |             |  |           |  
|Induced
 conversion cost                             |  |                                                     | (180,505  | )           |  | (247,306  | )
|                                                     |  |                                                     |           |             |  |           |  
|Amortization
 of deferred loan discount              |  |                                                     | (50,762   | )           |  | (50,762   | )
|                                                     |  |                                                     |           |             |  |           |  
|Amortization
 of deferred financing fees             |  |                                                     | (118,012  | )           |  | (62,908   | )
|                                                     |  |                                                     |           |             |  |           |  
|Total Other
 Income (Expense)                        |  |                                                     | (393,084  | )           |  | (404,781  | )
|                                                     |  |                                                     |           |             |  |           |  
|Loss before
 provision for income taxes              |  |                                                     | (559,852  | )           |  | (716,146  | )
|                                                     |  |                                                     |           |             |  |           |  
|Provision
 for income taxes                          |  |                                                     |          |             |  |          |  
|                                                     |  |                                                     |           |             |  |           |  
|Net loss                                             |  |                                                     | (559,852  | )           |  | (716,146  | )
|                                                     |  |                                                     |           |             |  |           |  
|NET LOSS
 APPLICABLE TO COMMON SHARES                |  |                                                     | (559,852  | )           |  | (716,146  | )
|NET LOSS PER
 BASIC COMMON SHARE                     |  |                                                     | (0.18     | )           |  | (0.23     | )
|WEIGHTED
 AVERAGE NUMBER OF COMMONSHARES OUTSTANDING |  |                                                     | 3,111,189 |             |  | 3,112,536 |  

F-43

---



CONOLOG CORPORATION AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSFOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS (continued)

|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|---------------------------------------------------- |  | -------------------------------------------------- | --------- | ------------------------------------------------ | - | -------------------- | - | ----------- | --------- | - | - | ---------- | -
|Period ending January 31, 2009                       |  | For the Three Month Period
 Ended January 31, 2009 |           | For the Six Month Period
 Ended January 31, 2009 |  
|                                                     |  |                                                    |          
|                                                     |  | Previously
 Reported                               |           | As Restated                                      |   | Previously
 Reported |   | As Restated |          
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |          
|                                                    
|Total Cost
 of product revenue                       |  | $                                                  | 130,331   |                                                  | $ | 215,074              |   | $           | 234,363   |   | $ | 463,977    |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Gross Profit
 (Loss) from Operations                 |  |                                                    | 358,628   |                                                  |   | 273,885              |   |             | 711,277   |   |   | 481,663    |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|General and
 administrative                          |  |                                                    | 614,129   |                                                  |   | 557,101              |   |             | 1,133,547 |   |   | 1,056,350  |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Research and
 development                            |  |                                                    |          |                                                  |   | 27,380               |   |             |          |   |   | 27,380     |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Selling
 expenses                                    |  |                                                    |          |                                                  |   | 14,714               |   |             |          |   |   | 34,608     |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Total
 operating expenses                            |  |                                                    | 614,129   |                                                  |   | 599,195              |   |             | 1,133,547 |   |   | 1,118,338  |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Loss Before
 Other Income (Expenses)                 |  |                                                    | (255,501  | )                                                |   | (325,310             | ) |             | (422,270  | ) |   | (636,675   | )
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Other income                                         |  |                                                    | 355,267   |                                                  |   |                     |   |             | 355,267   |   |   |           |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Induced conversion
 cost                             |  |                                                    | (25,406   | )                                                |   | (31,440              | ) |             | (205,911  | ) |   | (278,746   | )
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Amortization
 of deferred loan discount              |  |                                                    | (50,762   | )                                                |   | (50,762              | ) |             | (101,524  | ) |   | (101,524   | )
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Amortization
 of deferred financing fees             |  |                                                    | (118,012  | )                                                |   | (49,142              | ) |             | (236,024  | ) |   | (112,050   | )
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Total Other
 Income (Expense)                        |  |                                                    | 149,430   |                                                  |   | (143,001             | ) |             | (243,654  | ) |   | (547,782   | )
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Loss before
 provision for income taxes              |  |                                                    | (106,071  | )                                                |   | (468,311             | ) |             | (665,924  | ) |   | (1,184,457 | )
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Provision
 for income taxes                          |  |                                                    |          |                                                  |   | 376,859              |   |             |          |   |   | 376,859    |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Net loss                                             |  |                                                    | (106,071  | )                                                |   | (91,452              | ) |             | (665,924  | ) |   | (807,598   | )
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|Preferred
 stock dividends                           |  |                                                    |          |                                                  |   |                     |   |             |          |   |   |           |  
|                                                     |  |                                                    |           |                                                  |   |                      |   |             |           |   |   |            |  
|NET LOSS
 APPLICABLE TO COMMON SHARES                |  |                                                    | (106,071  | )                                                |   | (91,452              | ) |             | (665,924  | ) |   | (807,598   | )
|NET LOSS PER
 BASIC COMMON SHARE                     |  |                                                    | (0.03     | )                                                |   | (0.03                | ) |             | (0.21     | ) |   | (0.26      | )
|WEIGHTED AVERAGE NUMBER OF COMMONSHARES
 OUTSTANDING |  |                                                    | 3,127,079 |                                                  |   | 3,127,079            |   |             | 3,123,736 |   |   | 3,123,736  |  

F-44

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CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 2010 AND 2009

NOTE 16  RESTATEMENT TO PREVIOUSLY ISSUED UNAUDITED
QUARTERLY FINANCIAL STATEMENTS(continued)

|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|------------------------------------------------------------ |  | -------------------------- | ---------- | ------------------------- |  | -------------------- | - | ----------- | ---------- | - |  | ---------- | -
|Period ending April 30, 2009                                 |  | For the Three Month Period |            | For the Nine Month Period
|                                                             |  | Ended April 30, 2009       |            | Ended April 30, 2009     
|                                                             |  | Previously
 Reported       |            | As Restated               |  | Previously
 Reported |   | As Restated
|                                                             |  |                            |            |                           |  |                      |   |            
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Total Cost
 of product revenue                               |  |                            | 78,159     |                           |  | 165,841              |   |             | 312,522    |   |  | 629,818    |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Gross Profit
 (Loss) from Operations                         |  |                            | 215,761    |                           |  | 128,079              |   |             | 927,038    |   |  | 609,742    |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|General and
 administrative                                  |  |                            | 1,152,063  |                           |  | 495,223              |   |             | 2,285,610  |   |  | 1,551,572  |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Research and
 development                                    |  |                            |           |                           |  | 326,691              |   |             |           |   |  | 354,071    |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Selling
 expenses                                            |  |                            |           |                           |  | 31,783               |   |             |           |   |  | 66,392     |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Total
 operating expenses                                    |  |                            | 1,152,063  |                           |  | 853,698              |   |             | 2,285,610  |   |  | 1,972,035  |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Loss Before
 Other Income (Expenses)                         |  |                            | (936,302   | )                         |  | (725,619             | ) |             | (1,358,572 | ) |  | (1,362,293 | )
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Interest
 expense                                            |  |                            | (6,289     | )                         |  | (6,289               | ) |             | (75,563    | ) |  | (75,563    | )
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Interest
 income                                             |  |                            | 76         |                           |  | 77                   |   |             | 13,888     |   |  | 13,888     |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Other income                                                 |  |                            | (320       | )                         |  |                      |   |             | 354,947    |   |  |           |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Induced
 conversion cost                                     |  |                            | (142,071   | )                         |  | (142,071             | ) |             | (347,982   | ) |  | (420,817   | )
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Amortization
 of deferred loan discount                      |  |                            | (10,875    | )                         |  | (10,875              | ) |             | (112,399   | ) |  | (112,399   | )
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Amortization
 of deferred financing fees                     |  |                            | (25,280    | )                         |  | (16,058              | ) |             | (261,304   | ) |  | (128,108   | )
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Total Other
 Income (Expense)                                |  |                            | (184,759   | )                         |  | (175,216             | ) |             | (428,413   | ) |  | (722,999   | )
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Loss before
 provision for income taxes                      |  |                            | (1,121,061 | )                         |  | (900,834             | ) |             | (1,786,985 | ) |  | (2,085,292 | )
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Provision
 for income tax benefit                            |  |                            |           |                           |  | (320                 | ) |             |           |   |  | 376,539    |  
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|Net income
 (loss)                                           |  |                            | (1,121,061 | )                         |  | (901,154             | ) |             | (1,786,985 | ) |  | (1,708,753 | )
|                                                             |  |                            |            |                           |  |                      |   |             |            |   |  |            |  
|NET LOSS
 APPLICABLE TO COMMON SHARES                        |  |                            | (1,121,061 | )                         |  | (901,154             | ) |             | (1,786,985 | ) |  | (1,708,753 | )
|NET LOSS PER
 BASIC COMMON SHARE                             |  |                            | (1.19      | )                         |  | (0.96                | ) |             | (2.46      | ) |  | (2.35      | )
|WEIGHTED AVERAGE NUMBER OF COMMONSHARES
 OUTSTANDING - BASIC |  |                            | 939,688    |                           |  | 939,688              |   |             | 727,420    |   |  | 727,420    |  

F-45

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