SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB/A

                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, 2002 (No Fee Required)

|_|   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the transition period from _____ to _____
      (No Fee Required)

                         Commission File Number: 0-8174

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

                       DELAWARE                             52-0853566
            (State or other jurisdiction of                (IRS Employer
            incorporation or organization)              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 SmallCap Market Class A Warrants - Traded Until
Expiration of August 30, 2002

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 |X| No |_|

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-KSB or any
amendment to the Form 10-KSB.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the closing sale price of $.22 on October 15, 2002 was
$974,236.

The outstanding number of shares of the Registrant's common stock as of October
15, 2002 was 4,980,516.

<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE FORM 10-KSB/A
JULY 31, 2002

TABLE OF CONTENTS
PART I
Item 1. BUSINESS ........................................................  1-12

Item 2. PROPERTIES ......................................................  12

Item 3. LEGAL PROCEEDINGS ...............................................  12

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............  12

PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS .............................................  12-15

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
        AND FINANCIAL CONDITION .........................................  15-18

Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .....................  18

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE ........................................  18

PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS ...................................  19-20

Item 10. EXECUTIVE COMPENSATION, PROMOTERS AND CONTROL PERSONS:
         COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT .............  20-21

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT .....................................................  21-22

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................  22-23

PART IV
Item 13. EXHIBITS AND REPORTS ...........................................  23-24

SIGNATURES ..............................................................  25

<PAGE>

                                     PART I

                                    BUSINESS

General

      Conolog Corporation, a Delaware Corporation (the "Company" or "Conolog")
is engaged in the design, manufacture (directly or through subcontractors) and
distribution of small electronic and electromagnetic components and
subassemblies for use in telephone, radio and microwave transmission and
reception and other communication areas that are used in both military and
commercial applications. The Company's products are used for transceiving
various quantities, data and protective relaying functions in industrial,
utility and other markets.

      In September 1998, Conolog entered the temporary staffing industry with
its acquisition of Atlas Design, a human resource company. Atlas Design provides
short and long-term qualified engineering and technical staff to major companies
as well as human resource consulting.

      In August 2000, Conolog acquired Independent Computer Maintenance
Corporation, a provider of installation, maintenance and troubleshooting
services for commercial and corporate computer systems and networks to
businesses in the greater New York metropolitan area.

History

      The Company was organized in 1968 and was engaged primarily in the design
and manufacture of electronic components and systems for military applications.

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

      By 1980 it became apparent that the military segment of the business was
growing while the terminal viewer segment was a drain on cash and other
resources. By the year-end the terminal viewer business was discontinued and the
inventory relating thereto was written off, allowing the Company to concentrate
on its military business.

      In 1981 the Company acquired one of its customers, INIVEN Corporation
("INIVEN"). At that time, the Company was 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.

      Since the 1980's, Conolog has been an active participant in providing
electromagnetic wave filters for major military programs, such as the Patriot
Missile, Hawk Missile and Sea Sparrow Missile. In addition to these projects,
Conolog components are currently used by the military in tanks, the Apache
helicopters and the MK-50 torpedoes.

      During 1987, the Company made the strategic decision to redirect the
Company's focus from military to commercial markets. Since that time, the
Company has refocused on manufacturing and marketing its products for the
commercial marketplace rather than depend on the military and defense-related
markets. The effort has included the introduction of new products, the


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redesign of existing products and increased advertising and marketing efforts,
as permitted by its limited financial resources. The decision to embark on this
program entailed a major design effort, including the coordination of outside
engineering consultants to develop a complete line of products aimed at the
Company's target markets. The 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, the Company acquired the assets of Atlas Design, Inc.,
a human resource outsourcing company, to further its strategy of mergers and
acquisitions, and to assist in providing qualified engineering and technical
staff in support of Conolog's longer term contracts.

      Also in September 1998, the Company completed a sale/leaseback of its
manufacturing facility. This enabled the Company to significantly reduce
operating costs and increases the working capital.

      In August 2000, the Company acquired Independent Computer Maintenance
Corporation, a provider of installation, maintenance and troubleshooting
services for commercial and corporate computer systems and networks to
businesses in the greater New York metropolitan area.

      In January 2001, the Company 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 firm, book
publishing companies and engineering businesses.

      In October 2001, the Company designed and is in the process of completing
and building the PDR 2000 eight-channel system, Digital Protection Equipment for
power transmission applications, to be introduced by December 2001. The PDR 2000
is currently being tested in the field by one of our major utility companies and
is expected to be available during the second quarter 2003.

      In October 2002, the Company ceased providing installation, maintenance
and troubleshooting services for commercial and corporate computer systems.

                               General Description

Products

      The Company is 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 the Company); (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 the Company) or convert such signals into
mechanical


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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. The Company's products may be used
independently or in combination with other products to form a system type
configuration, whereby the Company's 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 Description

      The Company is presently engaged in four basic market segments:

      (A)   Commercial Sales (Under the trade name "INIVEN" (a Division of
            Conolog))

      -     Direct sales to end-users

      -     Sales to system assemblers

      -     Sales to contractors/installers

      (B)   Military Sales

      -     Direct contract sales to the military

      -     As subcontractor to systems producers

      -     Foreign governments

      (C)   Commercial Sales - As Manufacturing Subcontractor to Systems
            Producers.

      (D)   Staffing Services

      -     Short and long term qualified engineering and technical services as
            well as human resource consulting (Under the


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<PAGE>

            trade names "Atlas Design", "Prime Time Staffing" and "Professional
            Temp Solutions")

(A)   Military Sales

      Since 1992 the Company's engineering staff is dedicated to "INIVEN"
      commercial designs and does not engage in any new designs for military
      applications. The Company actively participates in bids only for parts the
      Company has designed since inception in 1968. Presently there are
      approximately 400 designs that are applicable to these military sales.

      Military sales are primarily for the Company's electromagnetic wave
      filters used in military radios, vehicles (cars, trucks or tanks),
      portable (backpack), special signaling equipment and exchanges (as in
      field command posts), weapon/missile guidance and control (Patriot
      missile, Tomahawk, Pave-Paws), torpedo active signal recognition and
      differentiation mounted in the nose cone of the torpedo (MK-30, Captor,
      MK-50 torpedoes), 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.

      The Company markets the above military sales directly and through
      independent manufacturing sales representatives on a commission basis.

B)    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.

(1)   PTR Teleprotection Series

      This product is designed for use exclusively by electric power generators
(electric utilities and cogenerators) 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 are 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 monitor 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.


                                       4
<PAGE>

      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.

      In the event of a fault, the information is transmitted to the PTR-1000 at
the other end of the line and once confirmed by both its receivers (this duality
is designed such that both receivers must agree before any action is taken), it
will, when programmed to do so, isolate that end of the line. Generation and
distribution of electric power entails expensive equipment at both ends of the
line. Faults causing interruption of transmission can cause costly replacement
of failed equipment and loss of revenue caused by downtime for repairs.

      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 PTR Teleprotection Series is 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-1000 target market is worldwide, as follows:

      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-1000 technology, again
      improving efficiency and down time.

      Sales efforts for the PTR-1000 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.

      According to McGraw-Hill, Inc. Electrical World (Electric Utilities of the
United States), in the United States alone, there are over 500 large entities
generating electricity. They are:

      Investor-owned
      Municipal Systems
      Cooperative Systems
      Federal, State and District systems.

(2)   Audio Tone and Telemetry Equipment


                                       5
<PAGE>

      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 segment 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 Series

      The 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.

      Because of the ease of use and installation, there is much GEN-1 type
equipment installed and used in the United States by a wide spectrum of diverse
users. Since the Company's line has a distinct mechanical configuration, the
Company designed its GEN-1 Programmable units and other improvements as
replacements for existing units. These account for approximately 18% of the
Company's commercial sales. The Company's 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.


                                       6
<PAGE>

      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-1000 market
except that manufacturers' representatives specialize in selling to this diverse
market.

      "98," "68" and "40" Series These series represent the Company's 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 the Company to greatly improve the scope, density and number of
functions that can be performed on a single phone line, microwave link or direct
line.

      Given this technology and the high-reliability and quality standards of
the Company's products, the Company began in the first quarter of 1994 to offer
a 12 year warranty for all of its commercial products. This warranty has been
favorably received by customers. Based upon its past experience, the Company
does not believe that its extended warranty will result in any material repair
or replacement expenses.

      Sales of these products are made by the same agents who sell the Company's
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.

(3)   Multiplex Supervisory (IM) Control System

      This 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, the Company 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 the Company sales efforts for it are being conducted through its
existing independent manufacturers sales representatives.


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<PAGE>

(4)   Fiber Optic Link and Data Modem

      The expansion of fiber lines by the Company's customers and their need to
switch equipment from phone lines to fiber prompted the Company to design and
introduce a fiber-optic-coupler line to interface with the many different fiber
heads. In addition to complete data interface couplers the Company launched a
series of 1200 Baud Modems (Industrial Grade) for operation under the same
environmental specifications in line with the Company's products.

(C)   Commercial Subcontract Manufacturing to Systems Producers

      Since the downsizing of the American Military, the Company has actively
sought manufacturing subcontract orders to fill the production void created by
the severe drop in military production. In June 1996 the Company negotiated and
entered into a renewable annual agreement with the General Electric Company, GE
Electrical Distribution and Control and its participating affiliated companies
for the manufacture of sub-systems, board assemblies and magnetic filters and
other products consistent with the Company's expertise. The success of this
agreement has prompted the Company to pursue other system producers to more
fully utilize the Company's manufacturing capacity.

Recent Developments

In October, we ceased our computer maintenance business and entered into an
Agreement to Rescind the Asset Purchase Agreement pursuant to which we acquired
the assets of ICM. Pursuant to the rescission agreement, we transferred
substantially all of the assets of ICM, to the extent they still exist, to their
prior owner for $600,000. The $600,000 purchase price was paid as follows:

                        (i) $300,000 was paid at closing:

                        (ii) A promissory note to Conolog was delivered at
                  closing in the amount of $150,000, bearing interest of 7.5%
                  per annum payable over 2 years in 24 equal monthly payments of
                  $6,479.94 per month, beginning on December 30,2002, and
                  continuing for 24 months, with the final payment due on
                  November 30, 2004. The Note is secured by a first mortgage on
                  a condominium.

                        (iii) A promissory not was delivered to Conolog at
                  closing in the amount of $150,000, less any prepaid fees,
                  hearing interest of 5.0% per annum payable over 10 years in
                  120 equal monthly payments beginning on December 30, 2004.
                  Interest only accrues for the first two years, so that the
                  balance on December 30, 2004, will be $165,000 and will be
                  payable in 120 equal monthly payments of $1,750.08 per month.


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<PAGE>

                        The parties agrees that the amount of pre-paid fee was
                  $13,400. Thus the amount of the 10-year Note shall be $137,350
                  ($150,000 less $13,400 pre-paid fees plus $750 moving
                  reimbursement). The parties agreed that the principal balance
                  due on December 20, 2004, shall be $151,500 and will be
                  payable in 120 equal monthly payments of $1,606.89 per month.

      The Company designed and is in the process of completing and building the
PDR 2000 eight channel system, Digital Protection Equipment for power
transmission applications, was introduced in December 2001. The PDR 2000 is
currently being tested in the field by one of our major utilities.

                                    STRATEGY

      The Company's strategy is to exploit new commercial markets by continuing
to develop new products and enhance existing products to improve both its 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 its customers for
more sophisticated and comprehensive products and services.

                               MARKETING AND SALES

      In general, the Company's products are marketed by means of telemarketing
and customer contacts by the Company's direct sales force and through
independent manufacturing sales representatives and distributors.

      MILITARY - The Company markets its military sales directly and through
independent manufacturing sales representatives.

      COMMERCIAL - The Company markets the PTR-1000, PTR-1500, PDR-2000 and all
of its INIVEN products by means of Company Sales personnel, through independent
manufacturers representatives, and through distributors, focusing mainly on the
largest utilities and co-generators. In the United States alone there are over
500 large entities generating electricity, which are identified as
investor-owned, municipal systems, cooperative systems and federal, state and
district systems. The Company intends to expand its sales efforts and expand
sales to international markets. The Company markets its Gen-1 and Gen-1
Programmable Series, as well as its "98" Series, "68" Series and "40" Series, in
the same way as the PTR-1000 except that the manufacturers representatives used
by the Company specialize in selling to the diverse markets that utilize such
products.

                                   COMPETITION

      The market for the Company's products and staffing services are very
competitive. There are several companies engaged in providing the services and
in the manufacturing the products of the type produced by the Company, 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


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<PAGE>

technological changes and advances. The Company would be adversely affected if
its competitors introduced technology superior products or offered these
products and services at significantly lower prices than the Company's products.

                                LARGEST CUSTOMERS

      Sales to the Company's major customers during fiscal 2002
(Schering-Plough) totaled $118,988(5% of all sales). Sales to the Company's
major customers during fiscal 2001 (Pearson Education, Schering-Plough, and
Superior Bank) totaled $1,231,840(27% of all sales). None of these customers has
or had any material relationship other than business with the Company.

                                    INVENTORY

Raw Materials

      The Company believes that it has adequate sources of raw materials
available for use in its business. The Company's 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. The Company is not dependent upon any single
supplier. The Company also purchases a number of other electronic components and
sub-assemblies from various suppliers. There has been no material increase in
the cost of most raw materials and the Company has no reason to anticipate any
significant shortage of raw materials in the future. The Company generally is
required to maintain adequate amounts of raw material and parts inventories to
meet delivery requirements of customers and to assure itself of a continuous
availability of these items.

      In the past the Company manufactured and held in its 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. As a
result, the Company no longer manufacturers military products in advance.
Rather, it only schedules production as purchase orders are received.

      During fiscal 2001, the Company wrote off $153,328 of its inventory as
obsolete. During fiscal 2002, the Company wrote off $1,294,323 of its inventory
as obsolete.

                                  MANUFACTURING

      Of the 15,700 square feet that the Company occupies at 5 Columbia Road in
Somerville, NJ, approximately 7000 square feet are dedicated to manufacturing.
The Company assembles, under normal workload conditions, all the product it
sells. To accommodate the peak demands that occur from time to time the Company
has developed a number of subcontractors to assemble boards to the Company's
specifications. All assemblies, however, are inspected and fully tested by the
Company's quality, engineering and testing departments. The Company maintains
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. This control, together with
design reliability, has permitted the Company to offer a 12-year warranty on all
its commercial products.


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<PAGE>

      In September 1998 the Company sold its facility and is leasing back
approximately 45% of the total space of the building in a three year prepaid
lease.

                              WARRANTY AND SERVICE

      The Company provides a twelve-year warranty on its products, which 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 that are
necessitated by misuse of such products are not covered by the Company's
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
then replace or repair the defective items and ship them back to the customer.
Generally all servicing is completed at the Company's plant and customers are
charged a fee for those service items that are not covered by the warranty. The
Company does not offer its customers any formal written service contracts.

                            RESEARCH AND DEVELOPMENT

New Products

      During fiscal 2000-2001, the Company invested approximately $25,000 to
complete the accessory modules of the PTR-1500 and extend the range of its
Multiplexer products. During fiscal 1999-2000 the Company invested approximately
$1,705,257 for product development and amortization of product costs. During
fiscal 2000-2001 the Company proceeded with the design of the PDR-2000 8 channel
digital transfer trip communications product.

      The Company also developed a new platform for its GEN1 products allowing
for its use by the Canadian utilities. During fiscal 2001-2002, the Company
invested $774,757 to complete its design of the PDR-2000, eight-channel digital
transfer trip communications product.

                             PATENTS AND TRADEMARKS

      The Company does not have any patents covering any of its present
products. The Company uses the trademark INIVEN for its commercial products. The
Company believes that such trademark is recognized in the Company's industry.
The Company believes that its prospects are dependent primarily upon its ability
to offer its customers high quality, reliable products at competitive prices
rather than on its ability to obtain and defend patents and trademarks. The
Company does not believe that its INIVEN trademark is of material importance to
the Company's business.

                             GOVERNMENTAL REGULATION

      The Company's manufacturing facilities, in common with those of industry,
generally 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. The Company believes that its
operations are in compliance with existing regulations and does not believe that
such compliance has had or will have any material effect upon its capital
expenditures, earnings or competitive position. With respect to military sales,
the Company is


                                       11
<PAGE>

not subject to any special regulations. The products manufactured are done so in
accordance with accepted commercial practices.

                                  RENEGOTIATION

      No material portion of the Company's business has been subject to
renegotiation of profits at the election of the Government since 1987.

                                    EMPLOYEES

      As of July 31, 2002, the Company employed 22 persons on a full-time basis,
including 3 in management, 1 in sales, 2 in clerical, 1 in accounting, 1 in
purchasing, 3 in engineering and 11 in production. The Company has enjoyed good
labor relations.

None of the Company's employees are represented by a labor union or bound by a
collective bargaining agreement. The Company has never suffered a work stoppage.
The Company believes its future success will depend, in part, on its continued
ability to recruit and retain highly skilled management, marketing and technical
personnel. The Company hires on a regular basis approximately 125 contract
employees.

Item 2. PROPERTIES

      The Company's principal executive offices are located at 5 Columbia Road,
Somerville, New Jersey.

      In September 1998, the Company sold this facility located at 5 Columbia
Road, Somerville, New Jersey in a sale/leaseback transaction in which the
Company is currently leasing approximately 45% of the total space in a three
year prepaid lease. The annual rent is $30,000.

      The Company currently leases an office at 2810 Morris Avenue, Union, New
Jersey to house its Atlas Design personnel. The annual rent is $9,900.

Item 3. LEGAL PROCEEDINGS

Litigation - None

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

               MARKET PRICE FOR COMMON STOCK AND CLASS A WARRANTS


                                       12
<PAGE>

      The Company's Common Stock is traded on the Nasdaq SmallCap Market, under
the symbols CNLG.

      The Company's Warrants expired as of August 30, 2002 and until then traded
on the Nasdaq Small Cap Market under the symbol CNLGW.

      The following table sets forth, for the periods indicated, the high and
low prices of the Company's Common Stock and Warrants (until August 30, 2002)
traded on the Nasdaq SmallCap Market for 2000, 2001 and the first, second and
third quarters of 2002. As of October 22, 2002, the Company's Common Stock was
held by approximately 840 shareholders of record.

                           Units                      Common Stock
2000                 High         Low               High        Low

  First
  Quarter           ____         _____             7.0625        .625

  Second
  Quarter           ____         _____             3.9688       1.75

  Third
  Quarter           ____         _____             1.9375        .75

  Fourth
  Quarter           ____         _____             1.58          .52

                           Units                      Common Stock
2001                 High         Low               High        Low

  First
  Quarter           ____         _____             1.187         .437

  Second
  Quarter           ____         _____             1.562         .562

  Third
  Quarter           ____         _____             1.33          .63

  Fourth
  Quarter           ____         _____             1.58          .52


                                       13
<PAGE>

                           Units                      Common Stock
2002                High         Low               High        Low
   First
   Quarter          ____         _____             .64          .305

   Second
   Quarter          ____         _____            1.25          .44

   Third
   Quarter          ____         _____             .96          .22

                                    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 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.

                              CONVERTIBLE DEBENTURE

      The Company entered into an Option Agreement dated May 30, 2002, the
agreement between Conolog and the "Optionee" pursuant to the "Option Agreement"
the Company has granted an option to the Optionee to purchase convertible
debentures of the Company having an aggregate principal amount of $97,500. Per
the Option Agreement, the Optionee exercised the option to convert this
Debenture into shares of Common Stock of Conolog Corporation in accordance with
the terms of this Debenture. As of July 18, 2002, the Optionee was issued
150,000 shares at a conversion rate of $2.60 per share of Conolog Corporation
common stock as per the option agreement.

      The Company and CLOG II LLC (the "Optionee") entered into an Option
Agreement, dated November 29, 2000, (the "Option Agreement"). Pursuant to the
Option Agreement, the Company has granted an option to the Optionee to purchase
convertible debentures of the Company having an aggregate principal amount of up
to $2,040,000. Per the Option Agreement, the option shall terminate on November
29, 2002.

The Optionee has the right to convert the principal amount of the debenture, or
any portion thereof, which is at least $25,000, into that number of shares of
common stock of the Company, obtained by dividing the principal amount of the
debenture by the conversion price of $2.72 per share. The Option Agreement
provides that the voting power of any conversion shares owned by the Optionee
will be voted in the same manner as shares voted by all other shareholders of
the Company. Through the year ending July 31, 2001, the Optionee purchased
$100,000 of convertible debentures and converted $75,000 of them into common
stock.

On July 12, 2002, the Company and the Optionee entered into an agreement,
whereby, the remaining dollar amount of convertible debentures was reduced to
$1,200,000. In addition, the agreement called for the conversion of the then
$25,000 outstanding debenture at a reduced conversion price of $0.4166 per
share.


                                       14
<PAGE>

                             STOCK OPTION PLAN 2002

      Conolog Corporation 2002 stock option plan was approved by its
shareholders at their annual meeting on July 9, 2002. As of October 24, 2002, no
options have been granted under this plan.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

                              RESULTS OF OPERATIONS

      In order to summarize the Company's operating results for the past two
years, the following tables indicate the percentage relationships of income and
expense items in the statements of income and the percentage changes in those
items for such years.

<TABLE>
<CAPTION>
Income & Expense Items as                      Income & Expense Items as
  a Percentage Of Revenues                   a  a Percentage Of Revenues               Percentage
       From Operations                              From Operations                Increase/(Decrease
For The Year Ended July 31                    For The Year Ended July 31
          2002                                            2001                         2001 to 2002
<S>                                        <C>                        <C>                <C>
          66.7%                            Product Sales &             27.7%              44.0%
                                           other income

          33.3%                            Service Sales &             72.3%             (39.0%)
                                           other income

          (121%)                           Product Cost of            (56.7%)             64.3%
                                           Revenue

         (70.0%)                           Service Cost of            (77.5%)             (7.5%)
                                           Revenue

         (74.9%)                           Selling, general &         (25.4%)             49.5%
                                           administrative

           0.0%                            Interest                     0.0%               0.0%

         (46.5%)                           Total costs                (49.1%)             (2.6%)
                                           & expenses

        (125.4%)                           Income (loss)              (45.8%)             79.6%
                                           before income
                                           taxes

           7.6%                            Income tax                   0.0%              7.60%
                                           (credits)

        (117.7%)                           Net Loss before            (45.8%)             71.9%
                                           extraordinary
                                           item
</TABLE>

*     Includes write-offs for obsolete or excess inventory, which were
      $1,294,323 and $153,321 in 2002 and 2001 respectively.


                                       15
<PAGE>

                              RESULTS OF OPERATIONS

2002 Compared to 2001

      Product revenue for the fiscal year ended July 31, 2002 totaled $1,746,578
an increase of 3.7% or $65,098 from $1,681,480 reported for fiscal year ended
July 31, 2001. The Company attributed the increase in product revenues to the
completion of a backlog order from the Company's military division.

      Service revenue for the fiscal year ended July 31, 2002 totaled $873,326 a
decrease of 80% or $3,525,512 from $4,398,838 reported for fiscal year ended
July 31, 2001. The Company's service revenue decreased as a result of the loss
of two of the Company's staffing divisions, which provided administrative
temporary and permanent placements.

      Product cost for the fiscal year ended July 31, 2002 totaled $2,113,270 an
increase of 55% or $1,159,720 from $953,550 reported for fiscal year ended July
31, 2001. The Company attributes the increase in product cost to the write off
of obsolete inventory totaling $1,294,323

      Service cost for the fiscal year ended July 31, 2002 totaled $611,612 a
decrease of 82% or $2,797,876 from $3,409,488 reported for fiscal year ended
July 31, 2001. The Company attributes the decrease in service cost to the
decrease in sales from the loss of two of the Company's staffing divisions.

      Gross profit for products for the years ended July 31, 2002 and July 31,
2001 totaled $(366,692) and $727,930, respectively, representing (21%) and 43%
of product revenue. The decrease in gross profit for products is attributed to
the write off of obsolete inventory during the fiscal year ended July 31, 2002.

      Gross profit for services for the years ended July 31, 2002 and July 31,
2001 totaled $261,714 and $989,350, respectively, representing 30% and 23% of
service revenue. The decrease in gross profit for services is attributed to the
loss of the Company's two divisions, which provided an increased profit margin
for administrative staffing positions.

      Selling, General and Administrative expenses increased from $1,546,663 or
25% of sales in 2001 to $1,963,068 or 74.9% of sales in 2002 as a result of
increased selling expense for the rollout of the PDR 2000 series.

      Research and development totaled $774,757 for the fiscal year ended July
31, 2002, due to the final stages of development on the PDR2000. There were no
research and development costs for fiscal year ended July 31, 2001.


                                       16
<PAGE>

      Employee bonus expense for fiscal year ended July 31, 2002 totaled
$432,359 and for fiscal year ended July 31, 2001 totaled $289,556. The Company
issued shares in both 2002 and 2001 to employees for their past contributions.

      The Company's interest income and expense for fiscal year 2002 was
$(10,032), as a result of interest payments on the Company's line of credit
through Unity Bank, with a maturity date of December 17, 2002, which was
extended in 2003 and interest income derived from the Company's interest bearing
accounts through Unity Bank. The Company had no interest expense for fiscal year
2001. Although the Company had interest income of $31,675 for fiscal year ended
July 31, 2001.

      As a result of the foregoing, the Company reported a net loss of
$(3,084,894) or $(0.81) per share, compared to a net loss of $(2,782,451) or
$(1.24) per share for fiscal 2001.

2001 Compared to 2000

      Product revenue for fiscal year ended July 31, 2001 totaled $1,681,480, an
increase of 26% or $443,469from $1,238,011 reported for fiscal year ended July
31, 2000. The Company attributes the increase to the completion of backlog
orders from the Company's military division.

      Service revenue for fiscal year ended July 31, 2001 totaled $4,398,838 an
increase of 0.58% or $25,717 from $4,373,121 reported for fiscal year ended July
31, 2000. The Company attributes the increase in service revenue to the
expansion of Atlas Design, who now supplies graphics personnel.

      Product cost for the fiscal year ended July 31, 2001 totaled $953,550 an
increase of 55% or $519,713 from $433,797 reported for fiscal year ended July
31, 2000. The Company attributes the increase in product cost to the write off
of obsolete inventory totaling $153,328 and an increase in the use of
sub-contractors for fiscal 2001 versus 2000.

      Service cost for the fiscal year ended July 31, 2001 totaled $3,409,488 a
decrease of 3% or $106,223 from $3,515,711 reported for fiscal year ended July
31, 2000. The Company attributes the decrease to a decrease in the profit margin
for the newly acquired graphics division versus the usual markup for the
administrative and technical division.

      Gross Profit for products for the years ended July 31, 2001 and July 31,
2000 totaled $727,930 and $804,214, respectively, representing 43% and 65% of
product revenue. The decrease in gross profit for products is attributed to the
write off of obsolete inventory and the added expense for sub-contractors during
fiscal year 2001.

      Gross Profit for services for the years ended July 31, 2001 and July 31,
2000 totaled $989,350 and $857,410, respectively, representing 22.5% and 19.6%
of service revenue. The increase in gross profit was due to the expansion of
Atlas Design, by gaining an administrative staffing firm which provides for a
larger profit margin than technical personnel.

      Selling, General and Administrative expenses decreased from $1,491,595 or
26% of sales in 2000 to $1,546,663 or 25% of sales in 2001 as a result in
increased automation.


                                       17
<PAGE>

      Employee bonus expense for fiscal year ended July 31, 2001 totaled
$289,556 and for fiscal year ended July 31, 2000 totaled $371,280. The Company
issued shares to its employees for their past contributions in fiscal years 2001
and 2000.

      The Company did not have any interest expense for fiscal year 2001 and
fiscal 2000. However, the Company did have interest income for the fiscal year
2001 totaling $31,675.

      As a result of the foregoing, the Company reported a net loss of
$(2,782,451) or $(1.24) per share, compared to a net loss of $(1,883,663) or
$(0.28) per share for fiscal 2000.

                         LIQUIDITY AND CAPITAL RESOURCES

      Working capital at July 31, 2002 was $1,735,629 compared to $4,479,842 at
year ended July 31, 2001. The decrease in the working capital is primarily
attributed to the design and new product development and the write-off of excess
and obsolete inventory.

      Accounts receivable have decreased from $495,412 at year-end July 31, 2001
to $221,015 at July 31, 2002. This decrease of $274,397 is the result of the
decreased sales primarily due to the economy and the decline in the staffing
industry.

      The Company obtained an unsecured line of credit with Unity Bank in the
amount of $250,000 on September 17, 2001. The interest is at a variable rate
based on the Wall Street Journal prime rate ("the index").

      The Company expects to meet its cash requirements for the next twelve
months through existing cash balances and cash generated from operations. In
addition, the Company believes that it can obtain financing from institutional
investors secured by its assets, if necessary.

                                    INFLATION

      Management believes that the results of operations have not been affected
by inflation and management does not expect inflation to have a significant
effect on its operations in the future.

Item 7. FINANCIAL STATEMENT

      The financial statements of Conolog Corporation, together with notes and
the Independent Auditors Report, are set forth immediately following Item 14 of
this Form 10-KSB.

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

      None


                                       18
<PAGE>

                                    PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

                                   MANAGEMENT

                        Directors and Executive Officers

      The following table sets forth certain information regarding the officers
and directors of the Company as of July 31, 2002.

     NAME                       AGE                        POSITION

Robert S. Benou                  67               Chairman/CEO/CFO and Director

Marc R. Benou                    34               President/COO, Assistant
                                                   Secretary and Director

Arpad J. Havasy                  66               Executive Vice President,
                                                   Secretary, Treasurer and
                                                   Director

Louis S. Massad                  65               Director

Edward J. Rielly                 34               Director

Thomas Fogg                      66               Vice President-Engineering

      Robert S. Benou served as President and a Director of the Company from
1968 to 2001 and presently serves as Chairman and Chief Executive Officer. Mr.
Benou is responsible for military products and new military product development.
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.

      Arpad J. Havasy has served as the Company's Executive Vice President and
Director since 1968. Mr. Havasy is a graduate of Electromos E's Gepeszeti
Technikum (Hungary) and the University of Budapest. In addition, Mr. Havasy has
attended courses at both Rutgers University and the American Management
Association. Mr. Havasy is on total disability.

      Louis S. Massad has been a Director of the Company since April 1995. Mr.
Massad was Vice President, Chief Financial Officer and Director of Computer
Power Inc. from 1986 to 1998. Mr. Massad has been the Chief Financial Officer of
Diversified Security Solutions, Inc. since 1999. Mr. Massad holds a BS and MS
degree from Cairo University Egypt) and an MBA from Long Island University, New
York.


                                       19
<PAGE>

      Marc R. Benou joined the Company in 1991 and presently serves as
President, Chief Operating Officer and Director of the Company. From March 1991
to April 2001 he served as Vice President, Assistant Secretary and a Director of
the Company. Mr. Benou attended Lehigh and High Point University and holds a BS
degree in Psychology and a BS in Business Administration and Management. Marc R.
Benou is the son of Robert S. Benou, the Company's Chairman.

      Edward J. Rielly has been a Director of the Company since January 1998.
Mr. Rielly is 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.

      Thomas R. Fogg joined the Company in 1976 as Chief Engineer responsible
for analog and guidance projects. Since 1986, when he became Vice
President-Engineering, he led the design team in the development of the
Company's commercial products. Mr. Fogg holds a BSEE degree from Lafayette
College and a MSEE degree from Rutgers University. Mr. Fogg is a fellow of the
Institute of Electrical and Electronic Engineers and has published articles on
delay equalization and the use of crystal resonators.

      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 any time by the Board, until the meeting of
directors immediately following the annual meeting of stockholders and until
their successors are appointed and qualified.

Item 10. EXECUTIVE COMPENSATION

                             Executive Compensation
                           Summary Compensation Table

<TABLE>
<CAPTION>
            Annual Compensation                            Long Term Compensation
                                                               Closing Price of
                                                                  Common Stock     Securities
Name and                                          Restricted    on the Date of     Underlying
Principal           Fiscal                           Stock      the Restricted       Options
Position           Year-End        Salary           Awards       Stock Award        /SARS (#)
<S>                  <C>           <C>               <C>             <C>              <C>
Robert               2002          $250,000          90,000          $ .70                 0
Benou,
CEO, CFO             2001          $230,000          80,000          $1.563           40,000
Chairman
                     2000          $210,000          75,000          $1.625                0

Marc                 2002          $ 80,000          72,000          $ .70                 0
Benou
President,           2001          $ 80,000          20,000          $1.563           45,000
COO, Assistant
Secretary            2000          $ 72,000          12,500          $1.625                0
and Director
</TABLE>

As of July 31, 2002, Mr. Robert Benou deferred receipt of $117,583 of his
salary.

The options granted during the fiscal year ended July 31, 2001 were granted
under the 2000/2001 Stock Option Plan, were exercisable at $1.60 per share and
have all been exercised.


                                       20
<PAGE>

                              EMPLOYMENT AGREEMENTS

      The Company has entered into a 5-year employment agreement commencing June
1, 1997 and ending May 31, 2002, with Robert Benou, which pursuant to its terms,
has renewed for one year term. Under his employment agreement, Mr. Benou will
receive an annual base salary of $150,000 for the first year of employment with
an increase of $20,000 beginning November 1997. 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-KSB. 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 employee may be terminated by the Company for
cause.

      The Company has entered into a 5-year employment agreement commencing June
1, 1997 and ending May 31, 2002, with Marc Benou, which, pursuant to its terms,
has renewed for one year term. Under his employment agreement, Mr. Benou will
receive an annual base salary of $55,000 for the first year of employment with
an increase of $6,000 beginning June 1998 and every year thereafter.

      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-KSB.
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 terminated upon death or
disability of the employee and employee may be terminated by the Company for
cause.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth the beneficial ownership of outstanding
shares of Common Stock of the Company as of October 29, 2002 by any person who,
to the knowledge of the Company, owns beneficially more than 5% of the
outstanding Common Stock, by all directors of the Company, and by the directors
and officers of the Company as a group.


                                       21
<PAGE>

      Name and                         Amount and
    Address  of                         Nature of
  Beneficial Owner                Beneficial Ownership       % of Ownership

Robert S. Benou(1)                     270,000                   5.40%

Arpad J. Havasy(1)                      22,500                    .45%

Marc R. Benou(1)                       181,797                   3.60%

Louis Massad(1)                         20,375                    .41%

Thomas Fogg(1)                          42,500                    .85%

Edward J. Rielly(1)                     15,000                    .30%

Clog II LLC(2)                         501,176                   9.24%

All Executive Officers
and Directors as a Group
(6 Persons)                            552,172                  11.09%

(1) The address for these individuals is c/o Conolog Corporation, 5 Columbia
Road, Somerville, New Jersey 08876.

(2) The amounts shown for Clog II LLC ("Clog II") includes 441,176 shares of
common stock issuable upon the conversion of debentures that Clog II holds an
option to purchase (collectively, the "Common Shares"). While Clog II holds any
of the Common Shares, it must vote these shares in the same manner and
proportion as the other shareholders of the Company (e.g., if a shareholder vote
on a proposal is required and, of the votes case, 60% vote for and 40% vote
against the proposal, the Common Shares will be voted 60% for, and 40% against
the proposal). Warren Schreiber, a member and manager, of Clog II is deemed to
benefically own the shares of Clog II. The mailing address for Clog II and Mr.
Schreiber is 64 Shelter Lane, Roslyn, New York 11557.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

NONE

                           FORWARD LOOKING STATEMENTS

      This annual report on Form 10KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Forward-looking statements inherently involve risks and uncertainties
that could cause actual results to differ materially from those stated. Such
statements are subject to certain risks and uncertainties, including our ability
to utilize, possible significant variations in recognized revenue due to
customer caused delays in installations and competition from larger more well
known, that could


                                       22
<PAGE>

cause actual results to differ materially from historical earnings and those
presently anticipated or projected. Furthermore, there can be no assurance that
our sales will increase or that our acquisitions will positively contribute to
our earnings. The Company does not assume any obligation to update the
forward-looking information and cautions readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made.

                                     PART IV

Item 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits, see index of exhibits annexed hereto

(b) Reports on 8K - None

Index of      Exhibits
Exhibit No.   Description of Exhibit

3(a)          Certificate of Incorporation - incorporated by reference to the
              Registrant's Exhibit 3.01 to Registration Statement on Form S-1
              (File No. 2-31302).

 (b)          Certificate of Amendment of Certificate of Incorporation -
              incorporated by reference to Exhibit 3.02 to the Registrant's
              Registration Statement on Form S-1 (File No. 2-31302).

 (c)          Certificate of Amendment of Certificate of Incorporation
              incorporated by reference to Exhibit 4 to the Registrant's Current
              Report on Form 8-K for July 1971.

 (d)          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." - incorporated by reference to Exhibit 3.03(a)to
              the Registrant's Registration Statement on Form S-1 (File No.
              2-31302).

 (e)          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. - incorporated by
              reference to Exhibit 3.04 to the Registrant's Registration
              Statement on Form S-1 (File No. 2-31302).

 (f)          Certificate of the Designation, Preferences and Relative,
              Participating, Option or Other Special Rights and Qualifications,
              Limitations or Restrictions thereof of the


                                       23
<PAGE>

              Series B Preferred Stock (par value $.50) of DSI Systems, Inc. -
              incorporated by reference to Exhibit 1 to the Registrant's Current
              Report on Form 8-K for November 1972.

 (g)          Certificate of Ownership and Merger respecting merger of Conolog
              Corporation into the Registrant and the changing of the
              Registrant's name from "DSI Systems, Inc." to "Conolog
              Corporation" - incorporated by reference to Exhibit 3 to the
              Registrant's Current Report on Form 8-K for June 1975.

 (h)          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(a)#         Specimen Certificate for shares of Common Stock

 (b)#         Form of Financial Consulting Agreement

10.1****      Employment Agreement dated June 1, 1997 between Robert Benou and
              Conolog Corporation

10.2****      Employment Agreement dated June 1, 1997 between Marc Benou and
              Conolog Corporation

10.3*****     Employment Agreement dated March 1, 1998 between Dina Stellwagen
              and Conolog Corporation

10.4          Agreement to Rescind Asset Purchase Agreement by and between
              Conolog Corporation, Independent Computer Maintenance Corp.,
              Natony Corp. and Natoli.

10.5+         Conolog Corporation 2002 Stock Option Plan

21.1          List of Subsidiaries

31.1          Rule 13a-14a/15d-14a Certification of Robert Benou

31.2          Rule 13a-14a/15d-14a Certification of Robert Benou

32            Certification required under Section 906 of the Sarbanes-Oxley Act
              of 2002 by Robert Benou

#             Incorporated by reference to Registrant's Annual Report on Form
              10-K for the year ended July 31, 2002, as filed on October 29,
              2002.

****          Incorporated by reference to the Registrant's Registration

              Statement on Form S-1 (0-8174) as filed on September 12, 1997

+             Incorporated by reference to the Registrant's Proxy Statement
              pursuant to Section 14(a) of the Securities Exchange Act of 1934
              filed on June 5, 2002.


                                       24
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                              Conolog Corporation


                                               By:/s/ Robert S. Benou
November 12, 2003                              Chairman, Chief Executive Officer

In accordance with the Exchange Act, 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 12, 2003
                                    /s/ Robert S. Benou
                              Chairman, Chief Executive Officer


November 12, 2003                   /s/ Arpad J. Havasy
                              Executive Vice President, Secretary,
                                    Treasurer and Director


November 12, 2003                   /s/ Marc R. Benou
                              President, Assistant Secretary and
                                      Director


November 12, 2003                   /s/ Louis S. Massad
                                          Director


November 12, 2003                   /s/ Edward J. Rielly
                                          Director


                                       25
<PAGE>

                      Conolog Corporation and Subsidiaries

                        Consolidated Financial Statements

                                  July 31, 2002

<PAGE>

                           Annual Report on Form 10-K

                         Item 8, Item 14 (a)(1) and (2)

                        Consolidated Financial Statements

                            Year Ended July 31, 2002
                                  (As Restated)

                      Conolog Corporation and Subsidiaries

                             Somerville, New Jersey

<PAGE>

                       Form 10-K - Item 14 (a) (1) and (2)
                 Index to the Consolidated Financial Statements
                      Conolog Corporation and Subsidiaries
                                  July 31, 2002

<TABLE>
<CAPTION>
                                                                                                       Page
<S>                                                                                                     <C>
The following consolidated financial statements of the registrant are included in Item 14:

     Independent Auditors' Report....................................................................   F-1
     Consolidated Balance Sheet - July 31, 2002 .....................................................   F-2 - F-3

     Consolidated Statements of Operations - Years Ended July 31, 2002 and 2001......................   F-4

     Consolidated Statements of Stockholders' Equity  - Years Ended July 31,
         2002 and 2001 ..............................................................................   F-5

     Consolidated Statements of Cash Flows - Years Ended July 31, 2002 and 2001......................   F-6 - F-7

     Notes to the Consolidated Financial Statements..................................................   F-8 - F-23
</TABLE>

<PAGE>

                          Independent Auditors' Report

To the Board of Directors of
Conolog Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheet of Conolog
Corporation and Subsidiaries as of July 31, 2002 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended July 31, 2002 and 2001. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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 financial position of Conolog Corporation
and Subsidiary as of July 31, 2002, and the results of its operations and its
cash flows for the years ended July 31, 2002 and 2001, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in the notes to the financial statements, the accompanying
consolidated balance sheet as of July 31, 2002, and the related consolidated
statements of operations, cash flows and stockholders' equity for the year ended
July 31, 2002 have been restated.


/s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
October 15, 2002
(except for Subsequent Event Note, as to which the
date is October 25, 2002 and except for
restatement note as to which the date is November
3, 2003)


                                      F-1
<PAGE>

                      Conolog Corporation and Subsidiaries
                           Consolidated Balance Sheet
                                  July 31, 2002
                                   As Restated

<TABLE>
<S>                                                                                 <C>
Assets
Current Assets
         Cash and equivalents                                                       $   316,499
         Accounts receivable - less allowance for doubtful accounts of $20,000          221,015
         Deferred tax asset                                                             200,297
         Inventories
                  Finished goods                                                        725,887
                  Work-in-process                                                        23,179
                  Materials and supplies                                                944,927
                                                                                    -----------
                          Total Inventory                                             1,693,993
         Other current assets                                                            21,935
                                                                                    -----------

                          Total Current Assets                                        2,453,739
                                                                                    -----------

Property, Plant and Equipment
                  Machinery and equipment                                             1,337,458
                  Furniture and fixtures                                                476,088
                  Computer software                                                     147,203
                  Leasehold improvements                                                 30,265
                                                                                    -----------
                                                                                      1,991,014
                  Less accumulated depreciation and amortization                     (1,771,703)
                                                                                    -----------
                                                                                        219,311
Goodwill, net of accumulated amortization of $46,027                                    855,319
Other assets                                                                              3,300
                                                                                    -----------

                          Total Assets                                              $ 3,531,669
                                                                                    ===========
</TABLE>

See notes to the consolidated financial statements.


                                      F-2
<PAGE>

                      Conolog Corporation and Subsidiaries
                           Consolidated Balance Sheet
                                  July 31, 2002
                                   As Restated

<TABLE>
<S>                                                                                   <C>
Liabilities and Stockholders' Equity

Current Liabilities

          Accounts payable                                                            $    177,883
          Accrued expenses                                                                  38,677
          Accrued legal fees                                                               108,762
          Deferred revenue                                                                  14,891
          Accrued payroll                                                                  127,897
          Line of credit                                                                   250,000
                                                                                      ------------

                  Total Current Liabilities                                                718,110
                                                                                      ------------

Stockholders' Equity

          Preferred Stock, par value $.50; Series A; 4% cumulative; 162,000
             shares authorized; 155,000 shares issued and outstanding                       77,500
          Preferred Stock, par value $.50; Series B; $.90 cumulative; 50,000
             shares authorized; 1,197 shares issued and outstanding                            597
          Common Stock, par value $0.01; 20,000,000 shares authorized; 4,980,516
             shares issued, including 2,203 shares
             held in Treasury                                                               49,805
          Contributed Capital                                                           20,494,003
          Retained (Deficit)                                                           (17,512,666)
          Treasury Shares at Cost                                                         (131,734)
          Subscription receivable                                                          (93,750)
          Prepaid consultant services                                                      (70,196)
                                                                                      ------------
               Total Stockholders' Equity                                                2,813,559
                                                                                      ------------

                  Total Liabilities and Stockholders' Equity                          $  3,531,669
                                                                                      ============
</TABLE>

See notes to the consolidated financial statements.


                                      F-3
<PAGE>

                      Conolog Corporation and Subsidiaries
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                          Year Ended July 31,
                                                                     ------------------------------
                                                                         2002
                                                                     As Restated           2001
                                                                     ------------       -----------
<S>                                                                   <C>               <C>
Service revenue                                                       $   873,326       $ 4,398,838
Product revenue                                                         1,746,578         1,681,480
                                                                      -----------       -----------
     Total Revenue                                                      2,619,904         6,080,318
                                                                      -----------       -----------

Costs of service revenue                                                  611,612         3,409,488
Costs of product revenue                                                2,113,270           953,550
                                                                      -----------       -----------
     Total Cost of Revenue                                              2,724,882         4,363,038
                                                                      -----------       -----------

Gross Profit (Loss)                                                      (104,978)        1,717,280
                                                                      -----------       -----------

Selling, general and administrative                                     1,963,068         1,546,663
Research and development                                                  774,757                --
Lawsuit settlement charges                                                     --           325,000
Reserve for employee notes receivable - stock options                          --           236,587
Employee bonus                                                            432,359           289,556
Marketing, product development and amortization of product costs               --         1,730,257
Legal fees                                                                                  403,343
                                                                      -----------       -----------
     Loss From Operations                                              (3,275,162)       (2,814,126)
                                                                      -----------       -----------

Other Income (Expense)
   Interest income                                                          1,652            31,675
   Interest expense                                                       (11,684)               --
       Total Other (Expense)                                              (10,032)           31,675
                                                                      -----------       -----------

Loss Before Income Taxes                                               (3,285,194)       (2,782,451)

(Benefit from) Income Taxes                                              (200,300)               --
                                                                      -----------       -----------
Net Loss                                                              $(3,084,894)      $(2,782,451)
                                                                      ===========       ===========

Loss Per Common Share  - Basic                                        $     (0.81)      $     (1.24)
Loss Per Common Share - Assuming Dilution                             $     (0.81)      $     (1.24)
</TABLE>

See notes to the consolidated financial statements.


                                      F-4
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Consolidated Statement of Stockholders' Equity
                                   As Restated

<TABLE>
<CAPTION>
                                               Series A           Series B                                            Retained
                                              Preferred          Preferred                          Contributed       Earnings
                                                 Stock              Stock         Common Stock        Capital         (Deficit)
                                             --------------    --------------    --------------   --------------   --------------
<S>                                          <C>                          <C>            <C>      <C>              <C>
Balance at July 31, 2000                     $       77,500               597            84,188   $   17,739,479   $  (11,636,961)
Debt to equity conversion                                --                --               828           74,172               --
Common shares issued to employees                        --                --             4,784          764,772               --
Common shares issued to consultants                      --                --             4,135          399,250               --
Common shares issued for commissions                     --                --               170           22,151               --
Common shares issued for services to be
provided                                                 --                --                --               --               --
Purchase of treasury stock (at cost)                     --                --                --               --               --
Sale of treasury stock                                   --                --                --           45,176               --
Additional shares issued for acquisition
costs                                                    --                --             1,210          118,566               --
Amortization of consultant services                      --                --                --               --               --
Net loss for the year                                    --                --                --               --       (2,782,451)
Effect of 1-for-4 reverse stock split                    --                --           (66,599)          66,599               --
Dividends                                                --                --                --            4,180           (4,180)
                                             --------------    --------------    --------------   --------------   --------------
Balance at July 31, 2001                     $       77,500               597            28,716   $   19,234,345   $  (14,423,592)
                                             --------------    --------------    --------------   --------------   --------------
Debt to equity conversion                                --                --             7,400          425,100               --
Common shares issued to employees                        --                --             7,625          396,609               --
Common shares issued to consultants                      --                --             3,310          247,817               --
Common shares issued for commissions                     --                --               190           11,820               --
Shares issued for services to be provided                --                --             1,064           69,132               --
Common shares issued for legal services                  --                --             1,500          105,000               --
Amortization of consultant services                      --                --                --               --               --
Net loss for the year                                    --                --                --               --       (3,084,894)
Dividends                                                --                --                --            4,180           (4,180)
                                             --------------    --------------    --------------   --------------   --------------
Balance at July 31, 2002                     $       77,500               597            49,805   $   20,494,003   $  (17,512,666)
                                             ==============    ==============    ==============   ==============   ==============

<CAPTION>
                                                                                          Consultant              Total
                                                                    Subscription        Services to be        Stockholders'
                                              Treasury Stock          Receivable           Provided               Equity
                                              --------------       --------------       --------------       --------------
<S>                                           <C>                  <C>                  <C>                  <C>
Balance at July 31, 2000                      $     (131,734)      $           --       $     (394,551)      $    5,738,518
Debt to equity conversion                                 --                   --                   --               75,000
Common shares issued to employees                         --                   --                   --              769,556
Common shares issued to consultants                       --              (93,750)                  --              309,635
Common shares issued for commissions                      --                   --                   --               22,321
Common shares issued for services to be
provided                                                  --                   --              (26,000)             (26,000)
Purchase of treasury stock (at cost)                (113,725)                  --                   --             (113,725)
Sale of treasury stock                               113,725                   --                   --              158,901
Additional shares issued for acquisition
costs                                                     --                   --                   --              119,776
Amortization of consultant services                       --                   --              208,311              208,311
Net loss for the year                                     --                   --                                (2,782,451)
Effect of 1-for-4 reverse stock split                     --                   --                                       --
Dividends                                                 --                   --                                       --
                                              --------------       --------------       --------------       --------------
Balance at July 31, 2001                      $     (131,734)      $      (93,750)      $     (212,240)      $    4,479,842
                                              --------------       --------------       --------------       --------------
Debt to equity conversion                                 --                   --                   --              432,500
Common shares issued to employees                         --                   --                   --              404,234
Common shares issued to consultants                       --                   --                   --              251,127
Common shares issued for commissions                      --                   --                   --               12,010
Shares issued for services to be provided                 --                   --              (70,196)                  --
Common shares issued for legal services                   --                   --                   --              106,500
Amortization of consultant services                       --                   --              212,240              212,240
Net loss for the year                                     --                   --                   --           (3,084,894)
Dividends                                                 --                   --                   --                   --
                                              --------------       --------------       --------------       --------------
Balance at July 31, 2002                      $     (131,734)      $      (93,750)      $      (70,196)      $    2,813,559
                                              ==============       ==============       ==============       ==============
</TABLE>

See notes to the consolidated financial statements


                                      F-5
<PAGE>

                      Conolog Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                               Year Ended July 31,
                                                        ------------------------------
                                                           2002
                                                        As Restated           2001
                                                        ------------       -----------
<S>                                                     <C>               <C>
Cash Flows From Operating Activities
    Net Loss                                            $(3,084,894)      $(2,782,451)
    Adjustments to Reconcile Net Loss to Net Cash
      Used in Operating Activities
    Common stock for commissions                             12,009            22,321
    Common stock base compensation                          402,335           289,556
    Common stock for consulting fees                        355,348           283,635
    Amortization of prepaid consulting expense              191,419           208,311
    Depreciation and amortization                            92,108            70,265
    Bad debt expense                                         20,075           251,512
    Deferred income taxes                                   (38,837)          101,540
(Increase) Decrease in Operating Assets
    Accounts receivable                                     254,322           352,116
    Inventories                                           1,064,173           158,417
    Other current assets                                     35,973            63,351
    Other assets                                              4,216             2,567
Increase (Decrease) in Operating Liabilities
    Accounts payable                                         59,796            49,039
    Settlement payable                                     (325,000)          325,000
    Accrued expenses and other liabilities                  (43,097)          (65,492)
    Deferred revenue                                        (14,609)           29,500
    Deferred gain on sale of assets                         (10,083)          (60,500)
                                                        -----------       -----------
      Net Cash Used in Operating Activities              (1,024,746)         (701,313)
                                                        -----------       -----------
Cash Flows From Investing Activities
  Purchase of equipment and leasehold improvements          (58,083)         (121,010)
  Purchase of goodwill                                           --          (146,469)
                                                        -----------       -----------
      Net Cash Used in Investing Activities                 (58,083)         (267,479)
                                                        -----------       -----------
Cash Flows From Financing Activities
  Proceeds from line of credit                              250,000                --
  Proceeds from employee note receivables                    50,339                --
  Proceeds from issuance of convertible debentures          432,500           100,000
  Proceeds from sale of treasury stock                           --           158,901
  Purchase of treasury stock                                     --          (113,725)
  Proceeds from issuance of stock options                        --           193,074
                                                        -----------       -----------
      Net Cash Provided by Financing Activities             732,839           338,250
                                                        -----------       -----------
 Net Decrease in Cash and Equivalents                      (349,990)         (630,542)
Cash and Equivalents at Beginning of Period                 666,489         1,297,031
                                                        -----------       -----------
Cash and Equivalents at End of Period                   $   316,499       $   666,489
                                                        ===========       ===========
</TABLE>

See notes to the consolidated financial statements.


                                      F-6
<PAGE>

                      Conolog Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   Cash paid during the year for:
                                                           Year Ended July 31,
                                                         ----------------------
                                                           2002          2001
                                                         --------      --------
    Taxes                                                $    890      $    600
    Interest                                               11,684            --

Noncash investing and financing activities:
    Conversion of debentures                              432,500        75,000
    Common stock issued for prepaid consulting services    70,196        26,000
    Common stock issued for subscription receivable            --        93,750
    Common stock issued for goodwill                           --       119,776
    Deposit on asset purchase for goodwill                     --       494,360

See notes to the consolidated financial statements.


                                      F-7
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 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.

      During the year ended July 31, 2000, the Company formed a wholly owned
      Subsidiary, Lonogoc Corporation. In August, 2000, Lonogoc Corporation
      purchased the assets of Independent Computer Maintenance Corporation
      ("ICM") and is currently operating under the trade name, ICM. ICM provides
      installation, maintenance, and troubleshooting of computer systems and
      networks.

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.

Inventories

      Inventories are valued at the lower of cost (determined on a first-in,
      first-out basis) or market.

Property, Plant and Equipment

      Property, plant and equipment are carried at cost, less allowances for
      depreciation and amortization. Depreciation and amortization are computed
      by the straight-line method over the estimated useful lives of the assets.
      Depreciation and amortization was $69,512 and $53,977 for the years ended
      July 31, 2002 and 2001, respectively. Repairs and maintenance expenditures
      which do not extend the useful lives of the related assets are expensed as
      incurred.

Research and Development

      Research and Development costs are expensed as incurred.



                                      F-8
<PAGE>


                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Revenue Recognition

      Revenue for product sales are recognized at the time of shipment, 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.

      Revenue for services provided under time and material contracts are
      recognized as services are provided by the temporary, contract or leased
      employees. Revenue from direct placements or "fixed fee contracts" is
      recognized at the time the candidate begins the first full day after the
      completion of a 30-day contingency period. Revenue from permanent
      placements, which are also considered fixed fee contracts, is recognized
      at the time the candidate begins the first full day after the completion
      of a required amount of temporary hours as stipulated in the Temp to Perm
      contract.

Goodwill

      Goodwill represents the excess of the purchase price of companies acquired
      over the fair market value of their assets acquired by Nologoc Corporation
      and Lonogoc Corporation at the date of acquisition and is being amortized
      on the straight line method over 40 years. Amortization expense of
      goodwill charged to operations for July 31, 2002 and 2001 was $22,596 and
      $20,102, respectively..

Advertising Costs

      Advertising costs are charged to operations when incurred. Advertising
      expense was $28,563 and $50,844 for the years ended July 31, 2002 and
      2001, respectively.

Securities Issued for Services

      The Company accounts for common stock issued for services by reference to
      the fair market value of the Company's stock on the date of stock
      issuance. Compensation, consulting and commission expense is recorded at
      the fair market value of the stock issued.

Income Taxes

      Income taxes are provided for the tax effects of transactions reported in
      the financial statements and consist of taxes currently due plus deferred
      taxes related primarily to differences between the bases of assets and
      liabilities for financial and income tax reporting. The deferred tax
      assets and liabilities represent the future tax return consequences of
      those differences, which will either be taxable or deductible when the
      assets and liabilities are recovered or settled. Deferred taxes also are
      recognized for operating losses that are available to offset future
      federal and state income taxes.

Loss Per Share of Common Stock

      Loss per share of common stock is computed by dividing net loss (after
      dividends on preferred shares) by the weighted average number of shares of
      Common Stock outstanding during the year. The number of shares used in the
      computations were 3,791,827 and 2,242,851 for 2002 and 2001 respectively.
      The effect of assuming the exchange of the warrants, Series A Preferred
      Stock and Series B Preferred Stock in 2002 and 2001 would be
      anti-dilutive.


                                      F-9
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Use of Estimates

      The preparation of financial statements in conformity with generally
      accepted accounting principles 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
      financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

      At times throughout the year, the Company may maintain certain bank
      accounts in excess of FDIC insured limits.

      The company provides credit in the normal course of business. The Company
      performs ongoing credit evaluations of its customers and maintains
      allowances for doubtful accounts based on factors surrounding the credit
      risk of specific customers, historical trends, and other information.

OPERATING LEASE COMMITMENTS

      The Company leases their facilities and various equipment under operating
      leases.

      Total rental expense for all operating leases of the Company amounted to
      approximately $ 64,607 and $60,312 during the years ended July 31, 2002
      and 2001, respectively.

      The following is a schedule of future minimum rental payments (exclusive
      of common area charges) required under operating leases that have initial
      or remaining non-cancelable lease terms in excess of one year as of July
      31, 2002.

               Year Ending July 31,
                   2003                                      $       31,845
                                                             --------------
                   Total minimum payments required           $       31,845
                                                             ==============

INCOME TAXES

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

                                                         July 31,
                                                ---------------------------
                                                  2002             2001
                                                ---------       -----------
              Current Income Taxes
                  Federal                       $      --       $        --
                  State                                --                --
              Deferred Income Taxes                                      --
                  Federal                              --                --
                  State                          (200,300)               --
                                                ---------       -----------
                                                $(200,300)      $        --
                                                =========       ===========


                                      F-10
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

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 year ended July 31,
2002, the Company entered into an agreement under which it sold a portion of its
NOL carryover. The total estimated proceeds of this transaction was recorded as
a benefit in the accompanying financial statements.

A reconciliation between taxes computed at the federal statutory rate and the
effective tax rate follows:

                                                     July 31,
                                                 -----------------
                                                  2002        2001
                                                 -----       -----
            Federal statutory tax rate           (34.0)%     (34.0)%
            Valuation Allowance on Net
                    Operating Loss Carryover      28.5        34.0
            Permanent and other differences         --          --
                                                  ----        ----
                                                  (5.5)%        --%
                                                  ====        ====

Deferred taxes are recognized for temporary differences between the bases of
assets and liabilities for financial statement and income tax purposes.

The temporary differences causing deferred tax benefits are primarily due to net
operating loss carry forwards.

At July 31, 2002, the Company has net operating loss carryforwards for federal
and state income tax purposes of approximately $13,842,557 and $6,544,405,
respectively, which are available to offset future Federal and State taxable
income, if any. The federal and state net operating loss carryforwards expire as
follows:

                                      Federal               State
                                    -----------          -----------
                      2006          $        --          $   859,586
                      2007                   --               88,824
                      2009                   --            3,452,716
                      2013              253,276                   --
                      2014            1,232,010                   --
                      2015              957,538                   --
                      2017              550,752                   --
                      2018            1,656,388                   --
                      2019              859,696                   --
                      2020            2,141,730                   --
                      2021            2,738,451
                      2022          $ 3,084,894          $        --
                                    -----------          -----------
                                    $13,474,735          $ 4,401,126
                                    ===========          ===========


                                      F-11
<PAGE>

      The Company's deferred tax asset is comprised of the following temporary
differences:

<TABLE>
<CAPTION>
                                                                     Federal         State
                                                                   ----------      ----------
<S>                                                                <C>             <C>
            Net operating losses and tax credit carryforwards      $4,700,000      $  589,000
            Less: valuation allowance                               4,700,000         388,703
                                                                   ----------      ----------
                     Net Deferred Tax Assets                       $       --      $  200,297
                                                                   ==========      ==========
</TABLE>

      The net change in the valuation allowance for the year ended July 31, 2002
      was $1,183,163.

LINE OF CREDIT

      The Company has a $250,000 twelve month revolving line of credit with a
      bank expiring September 17, 2002. The line of credit bears interest at the
      prime rate. As of July 31, 2002, the Company had borrowed $250,000 on the
      line of credit. Subsequent to the year end, the Company entered into an
      agreement with the bank, whereby, the line of credit was extended through
      December 17, 2002.

PROFIT SHARING PLAN

      The Company sponsors a qualified profit sharing plan that covers
      substantially all full time employees. Contributions to the plan are
      discretionary and determined annually by management. No contributions to
      the plan were made during the years ended July 31, 2002 and 2001.

      The Plan also provides an employee savings provision (401(k) plan) whereby
      eligible participating employees may elect to contribute up to 15% of
      their compensation to an investment trust. The Company contributes $2 for
      every $1 of the participant's elective contribution, up to 6% of the
      participant's compensation.

      The total expense for the above plan amounted to $70,037 and $68,907 for
      the years ended July 31, 2002 and 2001, respectively.

CAPITAL STOCK

      On April 17, 2001, the Board of Directors authorized a 1 for 4 reverse
      stock split of the Company's $.01 par value common stock.

      The Series A Preferred Stock provides 4% cumulative dividends, which were
      $102,183 ($0.64 per share) in arrears at July 31, 2002. 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 $1,200 per
      share.


                                      F-12
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

CAPITAL STOCK, Continued

      The Company may redeem the Series A Preferred Stock at $.50 per share plus
      accrued and unpaid dividends.

      The Series B Preferred Stock provides cumulative dividends of $.90 per
      share which were $33,456 ($27.05 per share) in arrears at July 31, 2002.
      In addition, each five shares of Series B Preferred Stock is convertible
      into 1 share of Common Stock. The Company may redeem the Series B
      Preferred Stock at $15 per share plus accrued and unpaid dividends.

      The Company has reserved 155,059 shares of Common Stock for Series A and B
      Preferred Stock.

WARRANTS

      The Company issued common stock purchase warrants separately and as a part
      of the previous offerings as follows:

<TABLE>
<CAPTION>
                                                              Exercise           Original            Extended
                                                             Price Per         Expiration           Expiration
                 Date of Grant        Number of Shares         Share               Date                Date
               -------------------    -----------------     -------------     -----------           ----------
<S>                                       <C>                  <C>                <C>  <C>              <C>
                    8/16/95               283,938              $6.00              8/16/98               8/02/02
                    1/21/98               725,300              $6.00              8/30/02                  --
                    1/21/98               300,000              $5.25              8/02/02                  --
</TABLE>

      Subsequent to the year-end, all of the above warrants had expired without
      being exercised.

CONVERTIBLE DEBENTURES

      The Company and CLOG II LLC (the "Optionee") entered into an Option
      Agreement, dated November 29, 2000, (the "Option Agreement"). Pursuant to
      the Option Agreement, the Company has granted an option to the Optionee to
      purchase convertible debentures of the Company having an aggregate
      principal amount of up to $2,040,000. Per the Option Agreement, the option
      shall terminate on November 29, 2002.

      The Optionee has the right to convert the principal amount of the
      debenture, or any portion there of which is at least $25,000, into that
      number of shares of common stock of the Company, obtained by dividing the
      principal amount of the debenture by the conversion price of $2.72 per
      share. The Option Agreement provides that the voting power of any
      conversion shares owned by the Optionee will be voted in the same manner
      as shares voted by all other shareholders of the Company. Through the year
      ending July 31, 2001, the Optionee purchased $100,000 of convertible
      debentures and converted $75,000 of them into common stock.

      On July 12, 2002, the Company and the Optionee entered into an agreement,
      whereby, the remaining dollar amount of convertible debentures was reduced
      to $1,200,000. In addition, the agreement called for the conversion of the
      then $25,000 outstanding debenture at a reduced conversion price of
      $0.4166 per share.


                                      F-13
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

MAJOR CUSTOMERS

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

<TABLE>
<CAPTION>
                                           Sales to Major               Number of               Percentage of
               Year Ended                     Customers                 Customers                   Total
        -------------------------         ------------------        ------------------         -----------------
<S>                                          <C>                            <C>                      <C>
                  2002                            --                       --                        --
                  2001                       $1,231,840                     3                        27%
</TABLE>

COMMITMENTS AND CONTINGENCIES

Employment Agreements

      On February 18, 1999 the Company amended the employment agreement, dated
      June 1, 1997, with Robert Benou, to serve as the Company's Chief Executive
      Officer through May 31, 2002. Pursuant to the agreement, Robert Benou's
      employment shall automatically renew on a year-to-year basis unless
      terminated by either party. Base salary under the agreement is $190,000
      per annum with annual increases of $20,000. The agreement also calls for
      an annual bonus equal to 6% of the Company's income before income taxes as
      stated in its annual Form 10-K. Employee benefit plans, such as life,
      health, pension and other plans are provided under the agreement. The
      Company will also provide reimbursement of ordinary and necessary business
      expenses and a monthly car allowance. A noncompetition/nonsolicitation
      restriction applies for one year after termination of employment. Upon
      termination without cause, the agreement provides for severance
      compensation equal to 2.99 times the average annual compensation.

      The President of the Company entered into an employment agreement on June
      1, 1997. The agreement is for a period of five years expiring May 31,
      2002. Pursuant to the agreement, the President's employment shall
      automatically renew on a year-to-year basis unless terminated by either
      party. Also, pursuant to the terms of the agreement, the officer is to
      receive a base salary of $55,000 for the period June 1, 1997 through May
      31, 1998 and an increase of $6,000 per annum for each twelve month period
      thereafter. The agreement also calls for an annual bonus equal to 3% of
      the Company's income before income taxes as stated in its annual Form
      10-K. The Officer is entitled to participate in all general pension,
      profit-sharing, life, medical, disability and other insurance and
      executive benefit plans at any times in effect for executives of the
      Company, however, the Company is not obligated to establish or maintain
      any of the aforementioned executive benefit plans. The Company will also
      provide an automobile and reimburse the Officer for all ordinary and
      necessary business expenses. A noncompetition/nonsolicitation restriction
      applies for six months after termination of employment. Upon termination
      without cause the agreement provides for severance compensation equal to
      2.99 times the average annual compensation paid by the Company.

Legal Matters

      In December 1998, the Company was named in two related litigations
      pending, one in the United States District Court for the southern district
      of New York and the other in Superior Court of New Jersey. The first of
      the pending litigations was commenced in 1993. The litigations relate to a
      dispute concerning real property acquired in 1984. While the property is
      near real property formerly owned by Conolog, Conolog was not a party to
      that transaction. The claim made against Conolog alleges that Conolog
      contributed to environmental contamination of the property acquired in
      1984. During the fiscal year ending July 31, 2001, an agreement has been
      reached to settle both cases by payment of $150,000 from the Company to
      the plaintiff. The settlement is to be funded entirely by the Company's
      insurance carrier.



                                      F-14
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

COMMITMENTS AND CONTINGENCIES, Continued

      In the third quarter of fiscal 1999, the Company reached an agreement in
      principle to purchase substantially all the stock or assets of Hallmark
      Temps, Inc. for use in conjunction with the Company's Atlas Design
      business. After discussions were terminated without an agreement having
      been reached, Conolog began doing business with an entity owned by a
      former employee of Hallmark. In October 1999, Hallmark filed a lawsuit in
      the Superior Court of New Jersey seeking a preliminary injunction and
      damages against the Company. Hallmark alleges that the Company breached a
      confidentiality agreement executed by the Company and Hallmark. The case
      was settled in August 2001 for $325,000.

     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 190,000 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 fairmarket
            value of the shares on the date of grant.

            As of July 31, 2002, there have been no shares granted under the
            2002 Plan.

      2000/2001 Stock Option Plan

            On December 26, 2000, the Board of Directors of the Company adopted
            the Conolog Corporation 2000/2001 Stock Option Plan (the "Option
            Plan"). The Option Plan is designed to permit the Company to grant
            either incentive stock options under Section 422A of the Internal
            Revenue Code or nonqualified stock options. The maximum number of
            common shares of the Company which may be granted under the plan is
            300,000. The exercise price for incentive stock options must be at
            least on hundred percent (100%) of the fair market value of the
            common stock as determined on the date of 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.

            On April 23, 2001, the Company granted 300,000 options to purchase
            the Company's common stock at $1.60 per share. All options granted
            on this date were exercised.

COMMON STOCK ISSUED FOR SERVICES

      Consulting Agreements

            On November 20, 2000, the Company entered into a 90-day agreement
            with World Alliance Consulting, Inc. ("World Alliance"), whereby
            World Alliance would provide public relations and consulting
            services to the Company. In consideration of such services, World
            Alliance received 75,000 shares of the Company's common stock.

            On June 12, 2001, the Company and Fengshui Consulting, Inc. entered
            into an agreement whereby, Fengshui Consulting, Inc. would provide
            public relations and consulting services to the Company


                                      F-15
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

COMMON STOCK ISSUED FOR SERVICES, Continued

            through April 30, 2003. In consideration of such services, Fengshui
            Consulting, Inc. received 20,000 shares of the Company's common
            stock

            On February 1, 2000, the Company entered into a six month agreement
            with National Financial Communications Corporation ("NFC"), whereby
            NFC would provide public relations, communications, advisory and
            consulting services to the Company. In consideration of such
            services, NFC received $10,000 upon the signing of the agreement and
            25,000 shares of the Company's common stock, during the term of the
            agreement. On June 14, 2000, the Company and NFC extended their
            agreement though December 31, 2000. In remuneration of the contract
            extension, the Company granted NFC 12,500 shares of common stock, In
            a second contract extension dated June 1, 2001, the Company and NFC
            extended their agreement through April 30, 2003. In remuneration
            thereof, the Company granted NFC 26,000 shares of common stock.

            On February 1, 2000, the Company entered into a six month agreement
            with Robert Marks Co., Inc. ("Robert Marks"), whereby Robert Marks
            would act as a consultant to the Company. In consideration of such
            services, Robert Marks was granted 25,000 shares of common stock of
            the Company. On June 14, 2000, the Company and Robert Marks extended
            their agreement through June 30, 2001. In remuneration of the
            contract extension, the Company granted Robert Marks 12,500 shares
            of common stock of the Company.

            In March of 2000, the Company entered into a one year consulting
            agreement with Southern Origins, Inc. ("Southern Origins"). In
            consideration of the consulting services to be provided, the
            Company, at the signing of the agreement, granted Southern Origins
            11,250 shares of the Company's common stock. In addition, the
            Company will grant Southern Origins 7,500 shares of the Company's
            common stock every ninety days, from the signing of the agreement.
            The agreement terminated February 16, 2001.

            In March of 2000, the Company entered into a one year consulting
            agreement with Eagle Consulting Services, LLC ("Eagle Consulting").
            In consideration of the consulting services to be provided, the
            Company, at the signing of the agreement, granted Eagle Consulting
            11,250 shares of the Company's common stock. In addition, the
            Company will grant Eagle Consulting 7,500 shares of the Company's
            common stock every ninety days, from the signing of the agreement.
            The agreement terminated February 16, 2001.

            In March of 2002, the Company entered into a one year consulting
            agreement with Leeward Consulting Group, LLC., David Michael, LLC.,
            Hannah Wolfson, LLC., and McFadden Group, LLC. In consideration of
            the consulting services to be provided, the Company, at the signing
            of the agreement, granted Leeward Consulting Group, LLC., David
            Michael, LLC., Hannah Wolfson, LLC., and McFadden Group, LLC, 45,000
            shares each of the Company's common stock. As per the consulting
            agreements after 90 days 22,500 shares will be issued and after 180
            days another 22,500 shares of the Company's common stock will be
            issued to Leeward Consulting Group, LLC., David Michael, LLC.,
            Hannah Wolfson, LLC., and McFadden Group, LLC.

            In March of 2002, the Company entered into a one year consulting
            agreement with Heather Clinger. In consideration of the consulting
            services to be provided, the Company, at signing of the agreement,
            granted Heather Clinger 10,000 shares of the Company's common stock.


                                      F-16
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

     COMMON STOCK ISSUED FOR SERVICES, Continued

            Consulting expense is recorded at the fair market value at the date
            of grant and is amortized over the life of the contracts. Consulting
            expense for the years ended July 31, 2002 and 2001 amounted to
            $373,786 and $491,946, respectively.

      Commission Agreement

            On February 1, 2000, the Company entered into a six month commission
            agreement with Scott Martone, Inc. and Scott Temps (Scott Martone),
            whereby, in addition to monetary remuneration, Scott Martone also
            received 12,500 shares of the Company's common stock at the signing
            of the agreement and 6,250 shares at the end of every ninety days,
            from the date of the signing. Pursuant to the contract, as the
            agreement has not been terminated by either party, it has been
            renewed through July 31, 2002.

      Employees

            During the years ended July 31, 2002 and 2002 the Company issued
            759,000 and 163,500 shares of the Company's common stock,
            respectively, as additional remuneration to certain employees.
            Compensation expense was recorded at the average fair value of the
            stock at the time of issuance and amounted to $402,335 and $271,410,
            respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

      Limitations

            Fair value estimates are made at a specific point in time, based on
            relevant market information and information about the financial
            instrument. These estimates are subjective in nature and involve
            uncertainties and matters of significant judgment and therefore
            cannot be determined with precision. Changes in assumptions could
            significantly affect the estimates.


                                      F-17
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

REPORTABLE SEGMENTS

      The Company's operations are classified into three principal reportable
      segments that provide different products or services.

                                Electronic      Engineering &   Computer System
                              Engineering and     Technical       and Network
                               Manufacturing      Staffing        Consulting
                              ---------------   -------------   ---------------

                                        Year Ended July 31, 2002
                                --------------------------------------------
         Sales                  $   833,431       $   873,349    $   913,124
         Net (loss) income       (3,141,307)           32,078         24,335
         Assets                   3,531,669           208,590        106,347

                                         Year Ended July 31, 2001
                                --------------------------------------------

         Sales                  $   695,823       $ 4,398,838    $   985,657
         Net (loss) income       (3,199,259)          393,269         23,539
         Assets                   4,602,778           452,132        200,696

SUBSEQUENT EVENT

      On October 22, 2002 Conolog entered an agreement to rescind the Asset
      Purchase Agreement between Conolog and Independent Computer Maintenance
      Corporation. Under the rescission agreement, Conolog and ICM agreed to
      transfer all assets previously purchased pursuant to the Asset Purchase
      Agreement to the extent they still exist to Natony Corp. the former
      seller. The return of purchase price paid for the assets was $600,000,
      $300,000 in cash, at closing, a note receivable for $150,000 of which will
      be paid over 24 months in equal monthly installments of $6,750 per month
      beginning December 2002, the note is secured by a first mortgage on a
      condominium owned by the purchaser; another note receivable for $137,350
      ($150,000 less fees of $12,650) unsecured note payable over 10 years
      beginning December 2004 bearing an interest rate of 5%.


                                      F-18
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

SUBSEQUENT EVENT, Continued

      The following pro forma condensed balance sheet and statement of
      operations gives effect to the above event as if it occurred on July 31,
      2002.

               Pro Forma Condensed Balance Sheet at July 31, 2002

<TABLE>
<CAPTION>
                                                                    As Reported in         Pro Forma
                                                                     Accompanying         Adjustments
                                                                       Financial         for Subsequent        Pro Forma
                                                                      Statements              Event          Balance Sheet
                                                                  ------------------     --------------     ---------------
<S>                                                               <C>                     <C>               <C>
                  Assets
          Current Assets
                  Cash                                            $          316,499      $    300,000      $       616,499
                  Accounts receivable, net                                   221,015                                221,015
                  Deferred tax asset                                         200,297                                200,297
                  Inventories                                              1,693,993           (26,667)           1,667,326
                  Note receivable                                                 --            47,250               47,250
                  Other current assets                                        21,935                                 21,935
                                                                  ------------------                        ---------------
                           Total Current Assets                            2,453,739                              2,774,322
                                                                  ------------------                        ---------------
                  Property, plant and equipment, net                         219,311           (12,880)             206,431
                  Goodwill, net                                              855,319          (532,981)             322,338
                  Note receivable                                                 --           240,100              240,100
                  Other assets                                                 3,300                                  3,300
                                                                  ------------------                        ---------------
                           Total Assets                                    3,531,669                              3,546,491
                                                                  ===================                       ================

                  Liabilities and Stockholders' Equity
         Current Liabilities
                  Accounts payable                                           177,883                                177,883
                  Accrued expenses                                            38,677                                 38,677
                  Accrued legal fees                                         108,762                                108,762
                  Deferred revenue                                            14,891           (14,891)                  --
Accrued payroll                                                              127,897                                127,897
Line of credit                                                               250,000                                250,000
                                                                  ------------------                        ---------------
                           Total Current Liabilities                         718,110                                703,219
                                                                  ------------------                        ---------------
</TABLE>


                                      F-19
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

SUBSEQUENT EVENT, Continued
<TABLE>
<CAPTION>
                                                                As Reported in      Pro Forma
                                                                 Accompanying     Adjustment for      Pro Forma
                                                                   Financial        Subsequent         Balance
                                                                  Statements          Event             Sheet
                                                                --------------   ---------------    ------------
<S>                                                             <C>                   <C>           <C>
            Stockholders' Equity
                     Preferred stock, Series A                  $     77,500                        $     77,500
                     Preferred stock, Series B                           597                                 597
                     Common stock                                     49,805                              49,805
                     Contributed capital                          20,494,003                          20,494,003
                     Retained (deficit)                          (17,512,666)         29,713         (17,482,953)
                     Treasury shares at cost                        (131,734)                           (131,734)
                     Subscription receivable                         (93,750)                            (93,750)
                     Prepaid consultant services                     (70,196)                            (70,196)
                                                                ------------                        ------------
                              Total Stockholders' Equity           2,813,559                           2,843,272
                                                                ------------                        ------------

            Total Liabilities and Stockholders' Equity          $  3,531,669                        $  3,546,491
                                                                ============                        ============
</TABLE>

         Pro Forma Condensed Statement of Operations as of July 31, 2002

<TABLE>
<CAPTION>
                                                               As Reported in         Pro Forma
                                                                Accompanying         Adjustments       Pro Forma
                                                                  Financial        for Subsequent       Balance
                                                                 Statements             Event            Sheet
                                                                ------------       --------------     ------------
<S>                                                             <C>                 <C>
            Service revenue                                     $    873,326        $                 $    873,326
            Product revenue                                        1,746,578             (929,685)         816,893
                                                                ------------                          ------------
                     Total Revenue                                 2,619,904                             1,690,219
                                                                ------------                          ------------

            Costs of service revenue                                 611,612                               611,612
            Costs of product revenue                               2,113,270             (466,889)       1,646,381
                                                                ------------                          ------------
                     Total Cost of Revenue                         2,724,882                             2,257,993
                                                                ------------                          ------------

            Gross Profit (Loss)                                     (104,978)                             (567,774)

            Selling, general and administrative                    1,963,068             (438,461)       1,524,607

            Research and development                                 774,757                               774,757
            Employee Bonus                                           432,359                               432,359
                                                                ------------                          ------------

                     Loss From Operations                         (3,275,162)                           (3,299,497)
                                                                ------------                          ------------

            Gain from discontinued operations                             --                29,713          29,713
            Total Other Expense                                      (10,032)                              (10,032)
                                                                ------------                          ------------
            Loss Before Income Taxes                              (3,285,194)                           (3,279,816)
            (Benefit from) Income Taxes                             (200,300)                             (200,300)
</TABLE>


                                      F-20
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

SUBSEQUENT EVENT, Continued

      Net Loss                                $  (3,084,894)     $  (3,079,516)
                                              =============      =============

      Loss Per Common Share - Basic           $       (0.81)     $       (0.84)

      Loss Per Common Share - Assuming
                              Dilution        $       (0.81)     $       (0.84)


                                      F-21
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

NEW ACCOUNTING PRONOUNCEMENTS

      In June 2001, the Financial Accounting Standards Board (FASB) issued
      Statement No. 141, "Business Combinations" (FAS 141), which supercedes
      Accounting Principles Board (APB) Opinion No. 16. FAS 141 requires all
      business combinations initiated after June 30, 2001 to be accounted for
      under the purchase method. In addition, FAS 141 established criteria for
      the recognition of intangible assets separately from goodwill.

      Also, in June 2001, the FASB issued Statement No. 142, "Goodwill and Other
      Intangible Assets," ("FAS 142"). As a result of this new standard,
      goodwill will no longer be amortized, but will be tested annually for
      impairment beginning in fiscal year ending July, 2003. Goodwill impairment
      testing will require that the Company make judgments concerning future
      cash flows and appropriate discount rates. The Company is unable to
      estimate the impact of the adoption of this standard because the
      transitional impairment testing required by FAS 142 has not yet been
      completed.

      In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
      Retirement Obligations", ("FAS 143"). This standard requires that
      obligations associated with the retirement of tangible long-lived assets
      be recorded as liabilities when those obligations are incurred, with the
      amount of the liability initially measured at fair value. Upon initially
      recognizing a liability for an asset retirement obligation, an entity must
      capitalize the cost by recognizing an increase in the carrying amount of
      the related long-lived asset. Over time, this liability is accreted to its
      present value, and the capitalized cost is depreciated over the useful
      life of the related asset. Upon settlement of the liability, an entity
      either settles the obligation for its recorded amount or incurs a gain or
      loss upon settlement. FAS 143 is effective for financial statements issued
      for fiscal years beginning after June 15, 2002. The Company does not
      expect that the adoption of this statement will have a material impact on
      the Company's results of operations, financial position or cash flows.

      In October 2001, the FASB issued Statement No. 144, "Accounting for the
      Impairment or Disposal of Long-Lived Assets," ("FAS 144"), which
      supercedes Statement No. 12, "Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets to be Disposed of." FAS 144 applies to
      all long-lived assets, including discontinued operations, and consequently
      amends APB opinion No. 30, "Reporting the Results of Operations-Reporting
      the Effects of Disposal of a Segment of a Business, and Extraordinary,
      Unusual and Infrequently Occurring Events and Transactions." Based on
      Statement No. 121, FAS 144 develops one accounting model for long-lived
      assets that are to be disposed of by sale, as well as addresses the
      principal implementation issues. FAS 144 requires that long-lived assets
      that are to be disposed of by sale be measured at the lower of book value
      or fair value less cost to sell. Additionally, Statement No. 144 expands
      the scope of discontinued operations to include all components of an
      entity with operations that (1) can be distinguished from the rest of the
      entity and (2) will be eliminated from the ongoing operations of the
      entity in a disposal transaction. The adoption of Statement No. 144 will
      not have a material impact on the Company's results of operations,
      financial position or cash flows.


                                      F-22
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements

RESTATEMENT OF PRIOR PERIOD RESULTS

      The Company has restated its financial statements for the year ended July
      31, 2002. The restated financial results reflect the correction of errors
      in the Company's accounting procedures related to the Company's accounting
      policy of obsolete inventory, the nature of which was an overstatement of
      obsolete inventory recognized during the period ending July 31, 2002 and
      the understatement of inventory as of July 31, 2002. The impact of this
      adjustment on the Company's financial results as originally reported is
      summarized below:

                                                   Year Ended July 31, 2002
                                                 -----------------------------
                                                 As Reported      As Restated
                                                 ------------     ------------

       Retained (Deficit)                        $(17,880,488)    $(17,512,666)
       Net Loss                                    (3,452,716)      (3,084,894)
       Total Assets                                 3,163,847        3,531,669
       Loss Per Share - Basic                           (0.91)           (0.81)
       Loss Per Share - Assuming Dilution               (0.91)           (0.81)


                                      F-23