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

Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

 X 	Annual  Report Pursuant to Section 13  or  15(d)  of  the Securities
	Exchange Act of 1934
      For the fiscal year ended July 31, 1997 (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, $1.00 par value                    NASDAQ SmallCap Market
Redeemable Class A Warrants                      NASDAQ SmallCap Market

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-K or any amendment to the Form 10-K.   X 

The aggregate market value of the voting stock held by non-affiliates
of the Registrant based on the closing sale price of $4.125 on
October 24, 1997 was  $8,408,701

The number of shares outstanding of the Registrant's common stock outstanding
as of October 24, 1997  was 2,803,473

DOCUMENTS INCORPORATED BY REFERENCE

FORM 10-K
JULY 31, 1997
TABLE OF CONTENTS

PART I
Item 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . .  3

Item 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . .  20

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . .  20

PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . .  20

Item 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . .  22

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
        AND FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . .  23

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . .  27

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . .   27

PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS. . . . . . . . . . . . . . . . . 28

Item 11. EXECUTIVE COMPENSATION, PROMOTERS AND CONTROL PERSONS:
         COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT. . . . . .  29

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . .  31

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . .  32

PART IV
Item 14. EXHIBITS AND REPORTS. . . . . . . . . . . . . . . . . . . . .  34

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   37

PART I

1. 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.

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  redesign  of
existing   products  and  increased  advertising  and   marketing
efforts,  as  permitted by its limited financial resources.   The
percentage  of  revenues attributed to products manufactured  for
use in commercial applications increased from approximately 4% of
sales  in 1981 ($171,000) to approximately 86% of sales  in  1997
($966,115).  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, cogeneration  of power,  gas  
and water  companies,  traffic control  for departments of trans-
port(DOT)  and airports utilizing DSP (Digital Signal Processing)
technology.

     Testing of the Company's first commercial product group, the
Teleprotection Series PTR-1000, was under way in the latter  part
of  1992 by Bonneville Power Administration.  This detailed  test
permitted  the  Company  to "fine tune"  the  product  for  power
transmission  applications.  In March  1994,  the   PTR-1000  was
approved  for  use  by  such  utility  and  thereafter  by  other
utilities and municipalities.  To date, the Company has sold  and
delivered  over  450  PTR-1000  sets  to  14  utilities   and   3
municipalities, most of which are installed and in service.

     Following the  PTR-1000, in 1993, the Company introduced its
"98  Series"  Tone  Products for water, gas,  telephone  and  oil
companies,  waste water, traffic control and airports.   In  1994
the  Company  unveiled  the  Power Supply  Series  (allowing  the
various  utilities  to  power-up the  equipment  from  any  power
source), the "40 Series" for transmission of analog variable data
(water levels, gas pressures and temperature) and the Multiplexer
Series, which permits the transmission of up to 900 separate data
points,  again  using  a  telephone  line,  microwave  link,   or
satellite.   In 1994 the Company also introduced the "68  Series"
tone  products.   This  series  is  the  "98  Series"  repackaged
mechanically  specifically  for  customers  with  older   systems
wanting  to  upgrade to DSP technology without the expense  of  a
complete  mechanical installation.  The "68  Series"  offers  the
entire  line  offered by the "98 Series".  In 1995,  the  Company
introduced a stand alone "98 Series" transmitter and receiver for
field  installations and a wide range fiber optic  interface  for
the Iniven products.  The fiber optic interface is also available
as  a  stand alone  coupling device.   The  company  launched its 
industrial   grade  1200  Baud  Modem  for   data   transmission/
communication,  and  completed  the  PTR-1000  Systems   options.  
Through 1997,  the Company  designed  and is  in the  process  of
completing  and building  the  PTR-1500  Quad  System, Protection
Equipment,  exclusively for the  General Electric Company ("GE"),
to be labeled GE-NS50 Series, for  worldwide sales as detailed in 
the agreement between GE and Conolog dated April 1, 1997.

     Due  to  the end of the cold war and the downsizing  of  the
American  military,  the  Company  experienced  unexpected  sharp
reductions  of  military contracts in fiscal 1993 (the  Company's
fiscal  year ends on July 31) resulting in a 50% decline  in  the
Company's sales for that year, down to $1,486,298 from $2,997,308
in  fiscal 1992.  The sales of new products could not replace the
decrease  in military sales.  The Company, however, continued  to
pursue  sales  as  aggressively as its available resources  would
permit.   Sales in fiscal 1995 were $2,090,933 a 2% increase over
fiscal 1994.  Sales for the Fiscal year ended July  31, 1996 were
$1,924,466 as compared to $2,090,933  for the year ended July 31, 
1995. Sales in fiscal 1997  totaled  $1,123,350,  a 42% decrease 
from $1,924,466 for the same period in 1996.
 
  Revenues from the Company's  military product sales represented
approximately  30%, 23% and 14% of  sales  of  the  Company    in 
fiscal  1995, 1996  and  1997,  respectively, reflecting      the 
Company's emphasis on commercial sales and markets.

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 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,  teleprinting  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 three 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.

(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 Teleprotection Series
               (Protective  Tone Relaying Communications Terminal, 
                which includes the PTR-1000 and the PTR-1500,under
                development and designed  exclusively for GE    to
                market.
          (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-1000 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 hundred 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.

     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, designed exclusively for GE in accordance with 
a seven year agreement,  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 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.

     To  date , the Company has sold and delivered over 550  PTR-
     1000 sets to 14  utilities  and 3  municipalities,  most of 
     which are installed and in service.

(2) Audio Tone and Telemetry Equipment

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


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

     This   product   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  20%  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.

     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.

(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.

On April 1, 1997, the Company signed an  exclusive   distribution
with the General Electric Company to develop and manufacture   an
advanced tone protection series product, the PTR 1500.  Under the
terms of the agreement, General Electric plans  to  market    the 
product world wide beginning in 1998. ( SEE: Recent Developments).



Recent Developments

The Company plans to have the PTR 1500 series   tone   protection
product available for General Electric evaluation during November
1997.  The  design  of  the  prototypes  for the PTR 1500   series 
were  essentially  completed  during  fiscal 1997 and  production
boards were included in inventory at July 31, 1997. Final testing 
and  evaluation  by GE  of these prototypes are anticipated to be 
completed by January 5, 1998.  Upon acceptance by GE, the Company 
intends to commence shipping production units for delivery during 
March/April 1998.

The Company s new INIVEN Multiplexer  was tested  for 2 way radio 
operation to  provide  8  analog  and 16 status    functions  bi-
directionally at a single site.  The  Company plans to  introduce
this radio link product line in the second half of 1998.





Public Offering

     On  August 16, 1995, the Company offered 235,750 Units  (the
"Units") at a price of $10.00 per  Unit.  Each Unit consisted  of
two  (2)  shares  of  Common Stock, par  value  $1.00  per  share
("Common  Stock"),  and one (1) Redeemable Class  A  Warrant  for
Common  Stock ("Class A Warrant").  The Common Stock and Class  A
Warrants  were  immediately detachable and separately  tradeable.
Each Class A Warrant entitled the holder to purchase one share of
the  Company's  Common  Stock, at an  exercise  price  of  $6.00,
subject  to  adjustment, from August 17, 1996 through August  16,
1998.   The  Class  A Warrants are subject to redemption  by  the
Company at anytime after August 17, 1996 on not less than 30 days
notice  at $.05 per  warrant, provided the average closing  price
of the Common Stock for 20 consecutive trading days ending within
15 days prior to the notice exceeds $7.20 per share.

     The  costs  of the offering were deducted from the  proceeds
from the sale of stock.

     On  August  16, 1995, the Company effected a 1-  for  -  100
reverse  stock split of its Common Stock on all shares of  Common
Stock outstanding.

     On  August  16,  1995,  holders  of  19,360  shares  of  the
Company's  Series B Preferred Stock (including Robert  Benou  and
Arpad J. Havasy, officers and directors of the Company) converted
their shares of Series B Preferred Stock into 387,200(3,872 post-
split) shares of Common Stock.

     On  August  16,  1995, $381,533 of the $420,179  of  accrued
dividends  on the Series B Preferred Stock at December  31,  1994
were  converted into 76,307 shares of Common Stock (represents  a
$5.00 per share assigned value of Common Stock) and the remaining
dividends  due  to  such  holders (including  Messrs.  Benou  and
Havasy) were waived.

   
     On  August 16, 1995, accrued salaries through April 28, 1995
of  $309,109 owed by the Company to Mr. Benou were converted into
61,822  shares  of  Common Stock (represents a  $5.00  per  share
assigned value of Common Stock).

     On  August  16,  1995, in connection with  the  August  1995
Offering,  the  Bank exchanged their existing loan agreement  for
the following:

     (a)  $250,000 cash
     (b)  $1,025,000 five-year term loan
     (c)  375,000 common shares of the Company

     The  debt forgiveness of $1,232,728 on restructuring of  the
obligation less the tax benefit thereon is accounted  for  as  an
extraordinary gain to the Company.




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.  The  Company  introduced  a fiber optic 
digitizer during fiscal  1996.  The  Company believes the largest 
growth  opportunity  remains  with  the  electric utility market, 
although it intends to reach other industrial and utility markets
such as railroad and waste water, respectively. The Company began
an  advertisement  program  during  1996  and devoted substantial 
resources as available for promotion.  The Company  intends    to  
participate in various trade  shows,  such  as  the     Utilities 
Communications Council and IEEE/PES during the forthcoming year.

The Company  will  continue  to seek out and broaden its  base of
manufacturer reps and other marketing  strategies  to  strengthen 
its market presence.

MARKETING AND SALES

     In general, the Company's products are marketed be 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 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 is very  competitive.
There  are  several  companies  engaged  in  the  manufacture of 
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 product quality and reliability
price, service and delivery. Competition is expected  to continue 
and  intensify.    The  market  is  also  characterized  by rapid 
technological  changes  and  advances.    The  Company  would  be 
adversely  affected  if  its  competitors  introduced  technology 
superior  products  or offered  these  products  at significantly 
lower prices than the Company s products.


Largest Customers

     Sales to the Company's two major customers during fiscal 1997 
(General Electric and Bonneville Power Authority) totaled $255,500
and $200,000 respectively  (22.7%  and  17.8%, respectively of all 
sales).    Sales to the  Company's major customer  in fiscal  1996 
(B.C. Hydro-Canada) totaled $380,000 (19.7% of all sales).Sales to 
the  Company's  major  customer  in  fiscal  1995   (United States 
Government)  totaled $424,849 (20%  of net sales).  During  fiscal  
1994, sales to the Company's major customer (Westinghouse Electric  
Corp.  -  Naval Systems Division)  totaled  $597,000   (29% of net 
sales).     None   of  such  customers  has or  had  any material 
relationship other than business with the Company.  

Raw Materials

 Inventory

     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  of
the Company no longer manufacturers military product in   advance.
Rather, it only schedules   production  as  purchase  orders  are
received. 


Manufacturing

     Of the 15,700  square  feet  that  the  Company  occupies at 
5 Columbia Road in Somerville, NJ,  approximately  10,000  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.



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

     Prior to fiscal 1997, amounts  expended  by the  Company  in 
recent years  for  research  and development activities have  not  
been   material.    During  fiscal  1997,  the  Company  invested 
approximately  $700,000 for the design and development of the PTR 
1500  for  General Electric.   The   Company   completed the PTR-
1000  series  option  modules  and the standard  modules  of  the  
PTR-1500  Quad  Series  to be sold exclusively worldwide by GE as
its Model NS50 The first prototypes are expected to be  delivered 
in November, 1997 ( See: Recent Developments).

    During 1996,  the Company invested  financial  resources  to  
design  a fiber optic  digitizer  and a 1200  baud modem  to  be    
sold separately or jointly with INIVEN products.    This product 
will enable    the   Company s  INIVEN  products   to   transmit  
directly onto fiber  optic cables, and open a new market for the 
Company's products. The Company intends to add designs that will 
extend its product   capability to handle  new data  inputs  not 
presently available.     There  can  be  no assurance  that  the  
Company  will be able to   successfully develop  and add designs 
to its products.

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 Companys business.

Backlog

     
     As  of  July 31,  1997,    the  Company  had  a  backlog  of 
approximately $2.9  million.  It is anticipated that this backlog  
will be filled during the  balance of calendar year 1997 and  the  
1998 fiscal year ending  July 31, 1998.  As of July 31, 1996 and  
1995, the Company had  a  backlog  of approximately    $3,400,000     
and $1,300,000, respectively.

The backlog of orders for the Company s PTR 1000 series of product
consists of multiple blanket contracts at fixed    prices  for the 
duration of the contract. There is no obligation or penalty if the 
contracts expire prior to additional orders being placed for the 
total value of the contract.

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 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.  



Seasonality

     The business of the Company is not seasonal,but is sensitive 
to general economic factors, such as interest rates, availability 
of  credit  for capital  purchases,  overall business climate and 
general   business  outlooks  that  historically  impact  capital 
purchase decisions.

Foreign Sales

     During  fiscal 1997,  the Company  did not have  any foreign
sales.  The company had approximately $380,000 in foreign sales to  
British Columbia  Hydro Power Authority, Inc.  during fiscal 1996. 
In fiscal  1995 the  Company had foreign sales of $140,000 to the 
Government of Israel.


Employees

     As of July 31, 1997,  the Company employed  31 persons  on a 
full-time basis,  including  2 in management,   2 in sales,  2 in 
clerical, 1 in  accounting, 1 in purchasing, 3 in engineering and 
20 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.

Item 2. PROPERTIES

     The  Company  owned  facility,  which  management  considers 
adequate for  the  Company's present  requirements, is located at 
5 Columbia  Road,  Somerville, NJ.   This  facility is  used  for 
manufacturing,  sales  and  its  executive  offices and comprises 
15,700 square feet.

Credit Facility

Background

     On  October  25, 1994, the Company and Chase Manhattan  Bank
(as successor by mergers with Manufacturers Hanover Trust Company
and Chemical Bank) (the "Bank") restructured the Company's credit
facility   ("Credit Facility") between the Company and  the  Bank
that had been in effect since April 5, 1989.


Under  the restructured terms the Credit Facility  had  been
extended as follows:

          (i)       Interest on the  Credit  Facility  was    to             
           accrue but  not  be payable until    July 31,   1995.   
           Beginning on that  date, interest payments were to be  
           made  in  arrears  on  the  last day  of each  month,    
           with  all unpaid interest previously accrued becoming 
           due  and payable on November 30, 1995.
          
          (ii)       All  principal  on the Credit  Facility  and
            other  amounts owing to the Bank would become due and
            payable November 30, 1995.

     The  principal amount owing to the Bank at January 31,  1995
was  $3,789,000 and the unpaid accrued interest was $584,728. The
interest  rate  on the Credit Facility  was 9.75% at   January 31,
1995.


     To secure  payment under  the  Credit  Facility, the Company
granted the Bank a first priority lien on all accounts receivable, 
inventory, equipment and general intangibles  of  the Company and 
a lien on the Company's real property located  at 5 Columbia Road, 
Somerville, New Jersey 08876.

     Payment of liabilities of the Company to the Bank under  the
Credit Facility was guaranteed  by Robert S. Benou, President  of
Company, to the extent of $965,000 and Arpad J. Havasy, Executive
Vice  President  of the Company, to the extent of  $492,500,  and
each  had  pledged all of his Common Stock and Series B Preferred
Stock to the Bank to secure their respective guarantees.


Terms in Connection with August 1995 Offering

     In connection with the August 1995 Offering the Bank and  the 
Company agreed to restructure the Credit Facility as follows:

The  Bank  received  from  the proceeds  of such  offering a cash  
payment  of $250,000  (the "Cash Amount").   The  remaining debt, 
after  giving effect  to   the  payment  to the  Cash  Amount was
restructured as follows: (1) $1,025,000 was structured as a five-
year term  loan (the  "Term Loan") bearing interest at the Bank's 
Reference  Rate plus  125  basis points,  to be amortized over 10 
years; $50,000 per year for the first two years, $100,000 per year 
in the third  and fourth  years  and  $112,500 in the fifth year.  
After  the  fifth year, the balance  of the  payments  was  to be
renegotiated  at  the Bank's  option; and secured by the existing 
collateral;  and (2) all  debt owing to the Bank in excess of the 
Cash Amount and  the Term  Loan was converted into 375,000 shares 
of Common  Stock  of the Company (the "Bank Shares").

In addition,  the Bank   released   the   existing     guarantees 
of Messrs. Benou and Havasy on the effective  date of the  August  
1995 Public  Offering.  Finally,  pursuant  to  the restructured  
1996 Credit Facility the Bank was granted the  right  to appoint  
a  member  to  the Company's Board  of  Directors



     The  debt forgiveness of $1,232,728 on restructuring of  the
obligation less the tax benefit thereon is accounted  for  as  an
extraordinary gain to the Company.




Credit Facility and Agreement with CNL Holdings, Inc.

     The  principal amount owing to the Bank under the  Company's
Credit  Facility at June 30, 1996 and amended as of January 1,1997
was  $1,012,500 and the unpaid accrued interest was $48,850.  The 
Bank  and  the  Company  entered  into  the  Conolog  Corporation   
Allonge  (dated  as of  September 11, 1996) pursuant to which the  
Amended  and   Restated  Term Note  dated   as of  August 2, 1995 
between the Company and the Bank (the  "Note") was further amended 
to  permit the  conversion  by  the Bank  of the  unpaid principal 
and  interest  due  under  the Note into  1,400,000 shares  of the 
Company's Common Stock and provided for conversion to be exercised 
by the Bank or its assignee.     The Bank deferred all payments of 
principal and interest under the Note until April 16, 1997.


     Subsequently,  on  September  12,  1996  the  bank  and  CNL 
Holdings, Inc., a private investor group,  entered into an  Option  
and Purchase, Sale and Assignment  Agreement dated as of September
12,  1996  (the "Option  Agreement").   Under the Option Agreement  
the  Bank       granted  an option  to CNL to purchase  all of the 
Bank's interest in (i)the Amended and Restated Term Loan Agreement 
dated as  of  August  2,  1995  between  the Company and the Bank,
(ii) the Note and (iii) the 375,000 shares of the Company's Common
Stock owned by  the Bank.    CNL paid $150,000 to the Bank for the 
option, which  had an exercise  price of $1,500,000  (a balance of 
$1,350,000) and an expiration date of April 15, 1997.

     As part of the aforementioned transaction,    CNL     agreed
to   loan   up  to  $2,500,000  to  the  Company  under   certain
circumstances (as described below) and the Company    agreed   to
file a registration statement (the "Registration Statement") with
the  Securities and Exchange Commission to register  the  375,000
shares  of  Common  Stock owned by the Bank and  the    1,400,000
shares  of  Common  Stock  into which  the  Note  is  convertible
(collectively, the "Acquired Shares").  As of July 31, 1997,  CNL
Holdings, Inc. has loaned the company $916,235.


      Each loan bears interest at the  rate of  4% per annum and 
is   be due 12 months  from the date of  such Loan.  At maturity, 
the Company will have the option to pay each Loan, together  with 
all accrued interest thereon in cash, or by issuing shares  of  a 
new Series  C  Preferred  Stock  ( the  "Series  C     Preferred") 
valued at $5.00 per share  for purposes of such repayment.

     The  Series  C  Preferred  will be non-voting  and  carry  a
cumulative dividend of 8% per annum which may be payable at   the 
Company s option by  the issuance  of shares of  Common     Stock 
valued at $5.00 per share  up to  a maximum of 40,000 shares  per 
annum.  The Series C Preferred will be convertible into    common  
stock at the rate of one share of common  stock  for each   share 
of  Series C Preferred and have a liquidating preference of $5.00 
per share.

     The  Agreement  also provides that for the two  year  period
commencing  on the issuance of any shares of Series  C  Preferred
(the "Registration Period") CNL may elect to include its Series C
Preferred  in  any  post-effective amendment to the  Registration
Statement  or any new registration statement under the Securities
Act  of  1933,  as  amended.   In addition,  the  Agreement  also
provides that during the Registration Period, CNL may give notice
to  the  Company  to the effect that it desires to  register  its
shares  under the Act for public distribution in which  case  the
Company  will  file a post-effective amendment to a then  current
registration statement or a new registration statement.   

  Management  believes   that  the  foregoing  transactions 
benefited  the Company  and  its  stockholders.  The exercise  by 
CNL of  its  option  under  the Option  Agreement  converted  the 
remaining  Debt Claim into shares of Common Stock which provided, 
the Company  the  opportunity  to,  in effect, exchange its  debt 
for equity and eliminated the Company's default under the  Credit  
Facility.   As of July 31, 1997,  CNL  has  fully  exercised  its 
option to acquire all of the Banks shares. The Company s bank debt 
has been cancelled and the  bank liens on the Company s  property
has been terminated.

Item 3. LEGAL PROCEEDINGS

The  Company  is  not  subject  to  any  material  pending  legal
proceedings.

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

During the fiscal quarter ended January 31, 1997,  shareholders
of  the Company  approved  an amendment  to the  Certificate of 
Incorporation to increase the total number of authorized shares 
of all classes of  stock from 6,500,000 of which 500,000 shares 
are classified as  Preferred  Stock  and  6,000,000  shares are 
classified  as  Common  Stock  to  22,000,000  shares  of which 
2,000,000 shares will be  classified  as  Preferred  Stock  and 
20,000,000 shares will be classified as Common Stock.
    


       PART II

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

MARKET PRICE FOR COMMON STOCK AND CLASS A WARRANTS

     The Company's  Common Stock and  Warrants  are thinly traded
on  the Nasdaq SmallCap Market, under the symbols CNLG and CNLGW, 
respectively. Prior to the August 1995 Offering, the Common Stock
was traded on the OTC Bulletin Board.

     The  following table  sets forth, for the periods indicated, 
the high and low bid and asked quotations of  the  Common  Stock,  
based  upon information supplied by the National Quotation Bureau 
for the  years  1995,  1996 and the  first three  quarters     of 
1997.   Such  quotations represent  inter-dealer  prices, without 
retail markups, markdowns or commissions and may not  necessarily 
represent actual transactions. As of October 22, 1997,        the 
Company's Common Stock was held by approximately 817 shareholders 
of record.






                            Bid                     Asked
                                                 
                                                        
                      High       Low           High        Low

1995                                                      
                                                             
   First Quarter      .02        .01           .10         .05
                                                             
   Second Quarter     .04        .01           .15         .05
                                                             
   
   
        The following table sets forth, for the periods indicated,
the high and  low prices  of the Company's Units (which no longer
trade), Common  Stock and Warrants traded on the  Nasdaq SmallCap 
Market for the  third and  fourth of 1995, 1996 and   the   first 
second and third quarters of 1997:


                  Units        Common  Stock        Warrants

                                                         
   1995      High     Low      High     Low       High     Low
                                                        
   Third                                                
   Quarter   18.5     14.00    8.50     5.75      4.00     2.00
                                                     
                                                        
   Fourth    19.25    14.75    9.25     6.25      3.25     1.25
   Quarter                                                
                                                       
                                                   
   1996                                                   
                                                        
   First     15.00    11.00     8.125    3.875     2.00     .9375
   Quarter                                                 
                                                        
   Second    11.25    11.25    6.5625   4.25       1.00    1.0156
   Quarter                                                
                                                     
                                                        
   Third      __       ___     6.25     2.25       1.50     .5625
   Quarter                                

   Fourth     __       ___     3.875    2.375      1.25      .50
   Quarter

1997

   First      ___     ____     5.875     3.00        .9375   .625
   Quarter

   Second     ___     ____      6.125    2.375      1.000    .375
   Quarter

   Third      ___     ____      5.675    2.250       .875    .250
   Quarter
      
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 share.     The 
Company anticipate 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 

Item 6.  SELECTED FINANCIAL DATA
                       Year Ended
                       July 31,
(in thousands, except   1997      1996     1995    1994    1993
per share amounts)                                     

Operations Summary:
Net sales and other     $1,123   $1,924   $2,091  $2,045  $1,486
income                         
                                                                
Net income (loss)                                     
from                     (672)      294     (522) (1,183)   (322)    
continuing operations
                                                         
Income (loss) from                                    
continuing operations                                 
per primary              (.42)     0.28     (0.12) (0.27)  (0.07) 
share                                         
                                                              
Income (loss) from                                    
continuing operations                                 
after                                                 
giving retroactive                                    
effect to a 1 for          -        -       (12.01)(27.22) (7.41)
100 reverse stock                            
split on August
16, 1995
Balance Sheet                                         
Summary:               
 Total assets          $4,340    $3,928     $3,882  $3,739 $4,601
                                                      
                                                               
Long-term debt and                                    
capitalized lease      $4            $5        $34  $3,830 $3,733
obligations






Item 7. 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 three 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.



   Income & Expense Items as          Income &          Percentage
    a Percentage Of Revenues        Expense Items   Increase/Decrease
    From Operations
      For The Years Ended July 31

     1997    1996   1995                1996 to   1995 to    1994 to
                                          1997      1996      1995
    100.0%  100.0% 100.0%  Sales &       (41.6%)    (8.0%)      2.3%
                           other                                
                           income
     84.2%*  67.2*  92.2*  Cost of       (27.9)    (32.9)      (4.2)
                           products                             
                           sold
     67.6    49.2   44.2   Selling,      (19.9)      2.4        8.4
                           general &                            
                           administrat
                           ive
      7.2     6.8   12.1   Interest      (38.5)    (48.0)     (30.0) 
                                                                
    158.9   123.2  148.5   Total costs   (24.7)    (23.5)      (3.8)
                           & expenses                            
    (52.9)  (23.2) (48.5)   Income        48.2     (56.0)     (14.3)
                           (loss)                               
                           before
                           taxes
       .9     -    (23.5)  Income        494.2    (100.0)        -
                           taxes                                
                           (credits)
    (59.8)% (23.2)%(25.0)% Loss before    50.4%   (14.4)%    (14.3)%
                           extraordinary                          
                           item

*    Includes write-offs for obsolete or excess inventory which were
$28,101, $50,281 and $656,248 in 1997, 1996,and 1995 respectively.

Results of Operations

1997 Compared to 1996

     Total revenue decreased $801,076 or 42% from  $1,924,466  to 
$1,123,391 in 1997.  This decrease was attributable to  delays in  
the release of tone  protection  orders from the Bonneville Power 
Administration  and other customers. The Company attributes these 
delays to the budget constraints for various utilities and to the
pending  release  of the new advanced  tone  protection   device, 
the PTR-1500.  The Company essentially completed the   prototypes 
during  the  first  fiscal  quarter  ended October 31, 1997.  The
Company plans to ship prototypes to GE during November 1997. 


     Gross Margins, inclusive of inventory adjustments  for  the  
years ended July 31, 1997 and 1996  totaled  $177,910 & $632,185
representing 15.8% and 32.9% of revenues. Gross margins for 1997 
were lower than 1996 due to the lower utilization of the factory 
in fiscal 1997 over 1996.

     Selling, General and  Administrative expenses decreased from
$946,954 in 1996 to $758,880 in 1997 representing  a decrease  of
19.9%.  This decrease  is the  result of cost cutting initiatives 
in the form of manpower reductions and reduced expenditures   for
sales and marketing expenses.  These initiative were  taken    by 
management during  the year to  help  offset the drop   in  sales 
during fiscal 1997.

     Interest expense totaled $81,026 for the year ended July 31, 
1997 compared to $131,854 for the year ended July 31, 1996.  This
decrease  was  a result  of lower   outstanding  loan    balances 
resulting from the paydown of the credit facility during the year.

     As a result of the foregoing, the Company reported a net loss
of $672,080 or  $0.42 per  share. This compares to a net income of 
$293,552 or $.28 per share for the same period last year.


1996 Compared To 1995

     Revenues  for  the  year ended July 31,  1996  decreased  to
$1,924,466  from $2,090,933 for the twelve months  of  the  prior
year,  representing a decrease of 8.0%.  Revenues declined  as  a
result of a decline in sales in the military sector.  The Company
completed a large sale of switches to the military in Fiscal 1995
and did not have a comparable sale for Fiscal 1996.

     Gross  margins  for the year totaled $632,184 and  $163,194,
respectively,  representing  32.9 % and  7.8%,  respectively,  of
revenues.  Gross margins were higher in 1996 due to the  obsolete
inventory write-off in 1995.  Without the inventory write-off the
1996  and  1995  gross margin would have been  35,5%  and  39.3%,
respectively.  The gross margin  for 1996  was  lower  than  1995
without  the inventory write-off due to the fact that higher than 
normal discounts were offered and taken on two major sales.

     Selling, general and administrative expenses increased  from
$924,524  in  1995 to $946,954 in 1996, representing  an increase
of 2.4%.  These expenses increased as a result of an expansion of
the employment base and an increase in advertising and  promotion 
costs.

     Interest expense totaled  $131,854 for the year  ended  July
31, 1996 as compared to $253,686 in interest expense for the year
ended  July  31, 1995.  The Company reached a debt  restructuring
agreement  with the Bank during 1995 that resulted in  having  no
interest expense for the quarter ended April 30, 1996.

     As  a  result of the foregoing, the Company reported  a  net
loss  of  $293,552,  or  $.28 per share.  The 1996 net profit was 
inclusive of  a debt compromise of $740,376, net of a tax benefit  
of $492,352.  This compares to a net loss of $522,044 or $.12 per
share for the same period last year (after retroactive effect  to
a  1  for  100  reverse  split  on  August  16,  1995  and  after
extraordinary item in 1996).

     As  of July 31, 1996 the Registrant's backlog of orders  was
approximately  $3.4 million, representing a mix of  military  and
commercial  telecommunication products.  The Company  anticipates
its  commercial shipments to grow as a percentage of total  sales
for the foreseeable future.


1995 Compared To 1994

     Total revenue increased $46,000, or 2.3%, from $2,045,000 in
1994 to $2,091,000 in 1995.  The increase  was attributable to an
expansion in the commercial sector  of  the  Company's  business,
which contributed  $1,422,000 or  68% to total revenues in  1995,
compared to $1,300,000 or 64% of total revenues in 1994.

     Costs of sales totaled $1,271,000 for the year ended July 31,
1995  as compared  to  $1,068,000 for the comparable period ended 
July 31,  1994,  representing  60.8%  and  52.2%  of net revenues, 
respectively.  Cost of sales increased as a result of product mix 
during the comparable years.

      A charge  of  $656,000 for inventory write-off was recorded
during the year.   This  amount  was  exclusively  due to certain
inventories purchased for military programs in prior periods that
were phased out.  There was a comparable  charge of  $945,000  in
fiscal 1994.

     The Company determined during the first quarter of 1995 that
there  was  not  sufficient  information  from  the  Government's
Defense-Electronic Supply Center ("DESC") facility to  permit the
Company to make a quantitative  determination  of  future  sales.
Inventory which totaled $656,000 was written off after management
made an analysis of  parts maintained for military and government
orders compared to  available  inventories. This amount consisted
of $318,000 for  raw materials, $249,000 for work in progress and
$89,000  for  finished goods.   There were  comparable charges of
$945,000 in the twelve month period ended  April 30,  1994.  This
analysis consisted of a study of the  forecasted  requisitions of
upcoming orders of the DESC, Conolog's principal defense customer.
On examination of prospective sales,  it was determined  that the 
government  had no  requirements  for Conolog's military products 
for at least the next twelve to eighteen months.

     As a result of the foregoing,  gross  profit margins totaled
$163,914 or 7.8% of sales for the fiscal year ended July 31, 1995
as compared to $32,330 or 1.6% of sales for the same twelve month
period in 1994. Exclusive of inventory  adjustments, gross profit
margins would have been 39% for the year  ended July 31, 1995 and
48% for the year ended July 31, 1994.

     Selling, General and Administrative Expense totaled $925,000
or 44.2% of revenues, as compared to $853,000 or 41.7% of revenues
for the comparable period last year.

     As a result of the foregoing, an operating loss of  $761,000
was realized for the year ended July 31, 1995  as compared  to an
operating loss of $821,000 for the same period last year.

     Interest  expense  for  the  twelve  months totaled $254,000
compared to $362,000 for the fiscal year ended July 31, 1994. The
Bank had agreed to fix the total interest  owed  as of January 31,
1995 and to keep the  amount  unchanged  through  August 16, 1995.
Accordingly, no interest expense was accrued from February 1,1995
through July 31, 1995.

     As a result of the foregoing, the Company incurred a net loss
of $522,000 for the twelve months ended July 31, 1995, compared to
a net loss of $1,183,000 for the same period last year.   The loss
in  1995  was  reduced  by  the  income  tax benefit  derived from 
previously incurred operating losses not deducted.  The losses, as
a  result  of  the  Registration,   will  be  deductible   against 
forgiveness of indebtedness income.


     As  of  July 31, 1995  the Company's  backlog  totaled  $1.3 
million, consisting of a mix  of military  and  commercial  tele-
communication products, compared to $1.5 million at July 31,1994.  
The  Company anticipates  its commercial shipments to continue to 
grow as a percentage of total sales in the foreseeable future.



LIQUIDITY AND CAPITAL RESOURCES

     Working capital at July 31, 1997 was $2,456,122 compared  to
$1,914,981 at year ended  July  31, 1996.  The improvement in the
working    capital  is the result of a planned inventory increase 
of $236,012. This is primarily  attributed to the building of the 
PTR-1500 tone  protection device.  The Company will be delivering 
to the General Electric Company under contract    prototype units 
during November 1997. Production    units are      expected to be 
delivered during the second quarter of fiscal 1998.

     Accounts receivable have decreased from $304,020 at year-end
July  31, 1996 to $109,571 at July 31, 1997.  This   decrease  of 
$194,449 is the result of lower average sales for fiscal     1997 
versus 1996.

 
     During the year, the Company received a total of  $1,116,235
in loans from private investors. The proceeds of   these    loans 
were used primarily for working capital purposes. Loans  totaling 
$916,235 were  received   during the  year from CNL Holdings,Inc. 
In addition to the CNL Holdings, Inc.  loans,  an      additional  
$200,000 in  loans  were received as bridge  loans from   certain 
investors,  the " Bridge Lenders".  Each of the bridge loans bear 
interest at the rate of eight percent (8%) per annum.  The Bridge 
Lenders have  the right  to  convert  $50,000  in  the  aggregate 
principal amount of their loans into a total of 1.2 million Class 
A Warrants.   Each Class A Warrant contained  in  the Convertible 
Bridge Notes is identical to the  Company s currently outstanding 
Class A Warrants.  The CNL Holdings, Inc. loans are due 12 months   
from  the date of each loan. At maturity, the  Company  will have  
the option to pay each loan,  together  with accrued interest, by 
issuing shares of a new Series C Preferred Stock. The bridge loan 
amounts  are  due  and  payable,  with accrued interest, upon the  
earlier of (1)January 31, 1999, or (ii) the  date of closing of a 
public offering of common stock  and common stock warrants of the
Company. A Registration statement was filed on  Form S-1 with the 
Securities and Exchange Commission on September 12, 1997


Each  of the bridge loans bear interest at the rate   of   eight  
percent (8%) per annum. The Bridge Lenders have the  right    to  
convert $50,000 in the aggregate principal amount of their loans
into a total of 1.2 million Class A Warrants. Each   Class     A 
Warrant contained  in  the Convertible Bridge Notes is identical 
to the Company s currently outstanding Class A Warrants.

On September 12, 1997 the Company filed a Registration  Statement
on Form S-1 with the Securities and Exchange Commission.     This 
Registration Statement covers the primary offering of  securities   
of the Company and the offering of other securities by the Bridge 
Lenders.     The Company is registering, under primary prospectus 
805,000 Units,  each Unit consisting  of one (1)  share of common 
stock  and four  (4)  Class A warrants.    The Bridge Lenders are 
registering,  under an alternate prospectus, 1.2 million  Class A 
Warrants.        At July 31, 1997 all costs associated with  this 
offering were deferred.    These  costs will be deducted from the 
Proceeds of the sale of stock.  The Company plans to use proceeds 
from  the public offering to satisfy its loan obligations to  CNL 
Holdings, Inc. and the Bridge Lenders.


     The Company plans to meet its cash requirements for the next 
twelve months through existing cash balances, cash generated from
operations and the net proceeds of the  public   offering.     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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     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-K.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

     None



                            PART III

Item 10. 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, 1997.

NAME AGE          POSITION

Robert S. Benou      63            President and Director

Arpad J. Havasy      61            Executive Vice President,
                                   Secretary, Treasurer and
                                   Director

Louis S. Massad      60            Director

Marc  R.  Benou      30            Vice President,  Assistant
                                   Secretary and Director
 
Thomas Fogg          62            Vice President-Engineering


   

     Robert  S.  Benou has served as President and a Director  of
the  Company  since 1968.  Mr. Benou is responsible for  military
products,  new product development and supervision of  sales  and
marketing.  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 has been Vice President, Chief Financial
Officer  and  Director of Computer Power Inc.  since  1986.   Mr.
Massad holds a BS and MS degree from Cairo University (Egypt) and
an MBA from Long Island University, New York.


     Marc  R. Benou joined the Company in 1991 and is responsible
for  material, purchasing and inventory control.  In March  1995,
he was elected Vice President, Assistant Secretary and a Director
 .   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 President.

     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.


     Section 16 (a) Beneficial Ownership Reporting Requirements
     There were no delinquent or untimely filers during the fiscal
year.



Item 11. EXECUTIVE COMPENSATION

Executive Compensation

     The   following  table  sets  forth  the  cash  compensation
(consisting  entirely of salary) paid (or  accrued  for)  by  the
Company  to  its  President,  the only  executive  officer  whose
aggregate  remuneration exceeded $100,000 in each of the
three Company's fiscal years ended July 31, 1997, 1996 and 1995:

                      Summary Compensation Table

                    Annual Compensation      Long Term Compensation

Name and                             Other Annual        
Principal   Fiscal                   Compensation
Position   Year-End  Salary       Bonus (1)        Awards   Payouts

             1997    $150,000        0               0         0  
Robert
Benou,
President    1996    $150,000        0               0         0

             1995    $150,000        0               0         0
    

_________________

Incentive Stock Option Plan

     On May 15, 1995, the  Board  of  Directors  of  the  Company
adopted and on August 14, 1995,  the  shareholders  approved  the
Conolog Corporation 1995/1996  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  (the "Code") or nonqualified stock options.
Under the Option Plan,  a  Stock  Option  Committee  (the "Option
Committee") of the  Board  is  authorized  to  grant  options  to
purchase up to 200,000 shares of stock to key employees, officers, 
directors  and  consultants of the Company.  The Option Committee 
administers the Option Plan and designates the optionees,the type
of  options to be granted (i.e., nonqualified or incentive  stock 
options),  the  number of shares subject to the options, and  the 
terms  and  conditions  of each option.  The terms and conditions 
include the exercise price, date of grant, and date  of  exercise 
of each option.  An employee may, at the discretion of the Option
Committee, be permitted to exercise an option and make payment by 
giving a personal note.

     Incentive  stock options may only be granted to employees of
the Company and not to  directors  or  consultants who are not so
employed.  The exercise price for incentive stock options must be
at least one  hundred  percent (100%) of the fair market value of
the  Common Stock  as  determined  by the Option Committee on the
date of grant. All incentive stock options  under the Option Plan
must be granted within ten (10) years from  the  date of adoption
of the Option Plan and each option  must  be exercised, if at all,
within ten (10) years of the date  of  grant. In no event may any
employee  be  given  incentive  stock  options whereby more  than
$100,000 of options become exerciseable  for  the first time in a
single  calendar  year.   All  incentive  stock  options must  be
exercised by an option within three (3) months  after termination
of the optionee's employment, unless such  termination  is  as  a
result  of  death, disability or retirement.   In  the  event  an
optionee's  employment  is  terminated  as  a  result of death or
disability, such optionee or his designated beneficiary  shall be
entitled to exercise any and all options for a  period  of twelve
(12) months after such termination.  If an  optionee's employment
is terminated as a result of  retirement,  the  optionee shall be
entitled to exercise his options for a period of twenty four (24)
months following such termination.

     Nonqualified  stock options  under  the  Option   Plan   are 
generally  subject  to  the  same  rules   as   discussed   above. 
Nonqualified stock  options  may, however,  also  be  granted  to
directors and  consultants,  whether  or not such individuals are
employees of the Company.    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.

     No incentive stock  options  or non-qualified  options  have
been granted.


EMPLOYMENT AGREEMENTS

     The  Company has  entered into a 5-year employment agreement
commencing June 1, 1997 and ending May 31, 2002, with Robert Benou.
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 and every   profitable
year thereafter.  In addition, Mr. Benou  is  entitled     to   an  
annual  bonus equal to 6% of the Company's annual "income   before
income  tax provision" as stated in  its annual Form 10-K.     The 
employment agreement also entitles Mr. Benou  to  the  use of   an 
automobile and to employee benefit plans, such as  life,   health,  
pension,  profit sharing and other plans.

Under  the employment agreement, employment terminates upon death 
or disability of the  employee and employee may be  terminated by 
the Company for cause.  The  company  intends  to  maintain  a $1
million life insurance policy  on the life of Robert Benou.  

     The  Company  has entered into a 5-year employment agreement
commencing  June 1, 1997 and ending May 31, 2002, with Marc Benou.
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 November 1997 and every profitable
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-K.  The employment  agreement also entitles 
him to the use of an automobile and to  employee  benefit  plans, 
such as life, health, pension,  profit  sharing  and other plans.  
Under the employment agreement, employment terminated upon  death
or disability of the employee and employee  may  be terminated by
the Company for cause.  



Item 12. 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 the  date
hereof  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.
        

      Name and             Amount and        Percentage of 
      Address  of          Nature of       Outstanding Shares     After
   Beneficial Owner   Beneficial Ownership  Before Offering      Offering

     Robert S. Benou (2)       710,039        25.00%              20.27%

     Arpad J. Havasy (2)        50,117         1.79%               1.43%
    
     CNL Holdings, Inc.(5)     510,000        18.19%   
     750 Lexington Ave.
     New York, NY  10022
     
     Marc R. Benou (2)          40,000         1.43%    	       1.14%

     Louis Massad  (2)           5,000          .18%              .142%

     Thomas Fogg   (2)          20,200          .72%               .57%
 All Directors and Officers
 as a Group (5 persons)        825,356        22.44%             23.56%  

 (1)  Does not include treasury stock.  Does not include possible 
        issuance of (i) 70,000 shares of Common Stock issuable upon 
        exercise of a Unit  Purchase  Option  issued to  the Public 
        Offering Underwriter,  (ii)  280,000 shares of Common Stock 
        issuable upon exercise of Class A Warrants contained in such
        Unit Purchase Option and (iii) the over-allocation options.

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

 

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


                      CERTAIN TRANSACTIONS

     On August 16, 1995, the Company effected a 1-for-100 reverse
stock  split  of its Common Stock on all shares of  Common  Stock
outstanding as of that date.

     On  August  16,  1995,  holders  of  19,360  shares  of  the
Company's  Series B Preferred Stock (Robert Benou  and  Arpad  J.
Havasy,  officers and directors of the Company)  converted  their
shares  of Series B Preferred Stock into 387,200 shares of Common
Stock (3,872 post-split shares).

     On  August  16,  1995, $381,533 of the $420,179  of  accrued
dividends  on the Series B Preferred Stock at December  31,  1994
were  converted  into  76,306 shares  of  Common  Stock  and  the
remaining  dividends  due  to  such holders  (Messrs.  Benou  and
Havasy) were waived.

     As of April 30, 1995, Messrs. Benou and Havasy have advanced
$139,196 to the Company for working capital purposes.  No  formal
repayment plan or interest charges have been established at  this
time.   In  addition,  the  officers had   not  been  paid  their
salaries since August 1, 1992.

     On August 16, 1995, accrued salaries of $309,109 owed by the
Company to Mr. Benou were converted into 61,822 shares of  Common
Stock

     Payment  of the Company's liabilities to the Bank under  the
Credit  Facility were guaranteed by Mr. Benou to  the  extent  of
$965,000  and  Mr.  Havasy  to the  extent  of  $492,000.   Their
respective guarantees were secured by a pledge to the Bank of all
Common Stock and Series B Preferred Stock owned by each of  them.
As  a  result of the August 1995 Offering, the Bank released  the
guarantees.

     Article Eighth of the Company's Certificate of Incorporation
provides that the Company shall, to the full extent permitted  by
Section  145 of the Delaware General Corporation Law, as  amended
from  time  to time, indemnify all persons whom it may  indemnify
pursuant thereto.

     Section  145 of the General Corporation Law of the State  of
Delaware authorizes a corporation to provide indemnification to a
director,   officer,  employee  or  agent  of  the   corporation,
including attorneys' fees, judgments, fines and amounts  paid  in
settlement, actually and reasonably incurred by him in connection
with such action, suit or proceeding, if such party acted in good
faith  and  in a manner he reasonably believed to be  in  or  not
opposed  to  the  best  interests of the corporation,  and,  with
respect  to  any criminal action or proceeding, had no reasonable
cause  to  believe  his  conduct was unlawful  as  determined  in
accordance with the statute, and except that with respect to  any
action  which  results in a judgment against the  person  and  in
favor of the corporation the corporation may not indemnify unless
a  court  determines  that the person is  fairly  and  reasonably
entitled to the indemnification.



     Section  145 further provides that indemnification shall  be
provided if the party in question is successful on the merits.

     Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers  and controlling persons of the Registrant  pursuant  to
the  foregoing  provisions, or otherwise, the  Company  has  been
advised  that  in  the  opinion of the  Securities  and  Exchange
Commission  such  indemnification is  against  public  policy  as
expressed  in  the  Act and is, therefore, unenforceable.   If  a
claim  for  indemnification against such liabilities (other  than
the  payment  by the Company of expenses incurred or  paid  by  a
director,  officer or controlling person in connection  with  the
securities  being  registered) the Company will,  unless  in  the
opinion of its counsel the matter has been settled by controlling
precedent,  submit  to  a court of appropriate  jurisdiction  the
question  whether  such indemnification by it is  against  public
policy as expressed in the Act and will be governed by the  final
adjudication of such issue.

     The  Company  has  adopted a policy that  transactions  with
affiliated entities or persons will be on terms no less favorable
than  could  be  obtained from unrelated  parties  and  that  all
transactions  between  the Company and its  officers,  directors,
principal  shareholders and affiliates  will  be  approved  by  a
majority of the Company's Board of Directors.





                             PART IV
                                
Item 14. EXHIBITS AND REPORTS ON FORM 8-K
(a)Financial Statements

Balance Sheets as of July 31, 1997 and 1996                      F-2
Statements of Income  for the years ended July 31,1997 and 1996  F-3
                                                              
Statements of Stockholders' Equity ( Deficiency )for the years
ended July 31,1997 ,1996 and 1995                                F-4
Statements of Cash Flows for the years ended July 31, 1997 and
1996                                                             F-5
Notes to Financial Statements                              F-6 to-10
     Index of Exhibits

Item 16.  Exhibits - None.

Exhibit No. Description of Exhibit

1(a)*       Form of Underwriting Agreement

1(b)*       Form of Selected Dealer Agreement

            1(c)*                   Form   of   Agreement   Among
            Underwriters

            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 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)*       Specimen Certificate for Class A Warrant

 (c)*       Form of Warrant Agreement

 (d)*       Form of Representative's  Unit Purchase Option

 (e)*       Form  of Financial Consulting Agreement

 

10.1        Credit  Facility  documents between  Manufacturers Hanover
            Trust Company and  the Registrant  pursuant to which Registrant
            obtained  a  Credit  Facility  for $4,000,000  -  incorporated  
            by reference   to   Exhibit  6A-D  to  the  Registrant's
            Current Report on Form 8-K dated April 5, 1989.

10.2  *     Conolog Corporation 1995/1996 Stock Option Plan.

10.3 ***    Option  and  Purchase, Sale and Assignment Agreement,
            dated  as  of  September 12, 1996 by and between  The
            Chase Manhattan Bank and CNL Holdings, Inc.

10.4 ***    Irrevocably Proxy dated as of September 12,  1996  by
            and   between   CNL   Holdings,  Inc.   and   Conolog
            Corporation.

10.5 ***    Agreement  dated September 12, 1996  by  and  between
            CNL Holdings, Inc. and Conolog Corporation.

10.5 (A)**  Amendment No. 1 dated January 31, 1997 to Conolog Corporation
            Allonge.

10.6        Agreement with General Electric Company dated April 1, 1997
            incorporated by reference to the Company s  Form 10-Q for the 
            quarter ended April 30, 1997.

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

10.8****    Employment Agreement dated June 1, 1997 between Mac Benou
            and Conolog Corporation


___________________

*    Incorporated  by reference to the Registrant's  Registration
Statement on Form S-1 (33-92424).

**  Filed by Amendment to the Registrant's Registration Statement 
file on Form S-1 (File No. 0-8184) as filed on October 16, 1996.


***  Incorporated  by reference to the Registrant's  Registration
Statement file on Form S-1 (File No 0-8174) as filed on  October
16, 1996

****  Incorporated by reference to the Registrant's Registration
Statement on Form S-1 (File No. 0-8174) as filed on September 12, 
1997



(b) Reports on Form 8-K
               None


                           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:
October  28, 1997	/s/ Robert S. Benou
	President, Chief Executive
	Officer and Chairman of the Board

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.


October 28, 1997
	/s/Robert S. Benou
	President, Chief Executive Officer
	and Chairman of the Board

October 28, 1997	/s/Arpad J. Havasy
	Executive Vice President, Secretary,
	Treasurer and Director

October 28, 1997	/s/Marc R. Benou
	Vice President, Assistant Secretary and Director

October 28, 1997	/s/Louis S. Massad
	Director














				Annual Report on Form 10-K
				Item 8, Item 14 (a)(1) and (2)

				         Financial Statements

				     Year Ended July 31, 1997


				         Conolog Corporation

				Somerville, New Jersey  08876


				Form 10-K Item 14(a)(1) and (2)

				Index to the Financial Statements

				         Conolog Corporation

					July 31, 1997




The following financial statements of the registrant are included in
Item 14:

Balance Sheets - July 31, 1997 and 1996 .........................  F-2

Statements of Income - Years Ended July 31, 1997, 
     1996 and 1995 .............................................   F-3

Statements of Stockholders' Equity (Deficiency) - Years
     Ended July 31, 1997, 1996 and 1995 .........................  F-4

Statements of Cash Flows - Years Ended July 31,
     1997, 1996 and 1995 ........................................  F-5

Notes to Financial Statements .................................... F-6-10

































			Independent Auditors' Report

Board of Directors
Conolog Corporation

We have audited the accompanying balance sheets of  Conolog
Corporation as of July 31, 1997  and 1996  and the  related 
statements of operations, stockholders' equity (deficiency)
and cash flows for each  of the three  years in  the period 
ended July 31, 1997.   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  generally  
accepted auditing standards.  Those standards require  that
we   plan  and  perform  the  audit  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 financial statements referred to above
present  fairly,  in  all  material respects, the financial
position of Conolog Corporation at July 31,  1997 and 1996,
and  the  results of  its operations and its cash flows for 
each of  the three years  in the period ended July 31, 1997
in conformity with generally accepted accounting principles.





Bridgewater, New Jersey
October 13, 1997
















		     Conolog Corporation
                         Balance Sheets

                                                July 31,
                                           1997        1996
                                        ---------    ---------
ASSETS

Current Assets
     Cash                               $503,217     $178,213
     Accounts Receivable - less
     allowances of $6,000 and 
     $14,000 in 1997 and 1996, 
     respectively                        109,571      304,020
     Inventories
        Finished Goods                 1,705,782    1,494,289
        Work-in-process                  498,070      129,675
        Materials and supplies           969,940    1,313,816
                                      ----------   ----------
                                       3,173,792    2,937,780


     Other Current Assets                 44,085       43,517
     Deferred offering costs             113,813         -
                                       ----------   ----------
                                       3,944,478    3,463,530

Property, Plant and Equipment
     Land and improvements                34,524       34,524
     Building and improvements           663,630      659,477
     Machinery and equipment           1,291,838    1,289,578
     Furniture and Equipment             336,001      330,735
                                      ----------   ----------
                                       2,325,993    2,314,314
less allowance for depreciation
    and amortization                   1,938,188    1,880,408
                                      ----------   ----------

                                         387,805      433,906
Other Assets                               7,469       30,398
                                      ----------   ----------

TOTAL ASSETS                          $4,339,752   $3,927,834
                                      ==========   ========== 










See notes to financial statements




                                              July 31,
                                          1997           1996
                                        --------       --------
LIABILITIES

Current Liabilities
     Notes Payable - Bank                $   -         $ 1,012,500
     Notes Payable - Other                916,235             -      
     Accounts Payable                     188,510          280,629
     Accrued Payroll                       15,644           41,716 
     Accrued Interest                      17,374           64,699 
     Bridge Loan                          200,000             -  
     Other Accrued Expenses               146,791          115,723
     Current Maturities of                  3,802           33,282
       capitalized lease obligations                  
                                         ---------      -----------
total current liabilities               $1,488,356      $1,548,549

Other Liabilities
     Capitalized lease obligations, 
      less current maturities                 -              4,973
                                         ---------       ----------
									         

STOCKHOLDERS' EQUITY (DEFICIENCY)

     Preferred Stock, par value $.50; 
       Series A; 4% cumulative;162,000 
       shares authorized; 155,000 shares 
       issued and outstanding               77,500          77,500
     Preferred Stock, par value $.50; 
       Series B; $.90 cumulative;
       50,000 shares authorized, issued 
       and outstanding 1,197 shares
       in 1997 and 1,167 in 1996               597             597
     Common Stock, par value $1.00; 
       20,000,000 shares authorized; 
       issued 2,803,473 shares in 1997 
       and 1,035,186 in 1996, including 
       8,776 shares held in Treasury     2,803,473       1,035,186
     Additional Paid-in Capital          3,782,513       4,401,636
     Retained Earnings (Deficit)        (3,680,953)     (3,008,873)
     Treasury Shares at Cost              (131,734)       (131,734)
                                        -----------     -----------
Total Stockholders' Equity (Deficiency)  2,851,396       2,374,312
                                         ----------     -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
                                        $4,339,752      $3,927,834
                                        ==========      ==========





				Conolog Corporation
			   Statements of Operations

                                    Year Ended July 31,
                                      1997        1996            1995
                                 ----------      ---------      -----------
Sales and other income		$ 1,123,390	$1,924,466	$ 2,090,933

Costs and Expenses:
   Cost of Products sold	    917,379	 1,242,001	  1,270,771
   Selling, general and
     administrative		    758,880	   946,954	    924,524
   Interest                          81,026        131,854          253,686
   Write-off obsolete or
     excess inventories		     28,101	    50,281	    656,248
                                   ---------      ---------        ---------
                                  1,785,386      2,371,090        3,105,229

Loss Before Income Taxes and
   Extraordinary Items             (661,996)      (446,624)      (1,014,296)

Income taxes (benefit)		     10,084	       200	   (492,252)
                                   ---------      ---------       ----------
Net Loss before Extraordinary
   Items                           (672,080)      (446,824)        (522,044)

Extraordinary Items                    -           740,376             -
                                   ---------      ---------        ---------
Net Income (Loss)                 $(672,080)     $ 293,552        $(522,044)
                                  ==========     =========        ==========
(Loss) from Continuing
   Operations Per Share           $    (.42)     $   (.43)        $  (12.01)
                                  ==========     ==========       ==========
Net Income (Loss) Per Share
     - Primary                    $    (.42)     $    .28         $  (12.01)
                                  ==========     ==========       ==========
     - Fully Diluted              $    (.42)     $    .20         $  (12.01)
                                  ==========     ==========       ==========


















See notes to the financial statements
			
												
                    Conolog Corporation
         Statement of Stockholders' Equity (Deficiency)
					
                                        
                        Series A        Series B                Additional    
                        Preferred       Preferred       Common  Paid-In       
                        Stock           Stock           Stock   Capital        

Balance @ July 31,
     1994               $ 77,500        $ 10,661   $   52,239   $ 952,994  

Net loss for the year       -               -            -           -          
                        --------        --------    ---------   ---------    
Balance @ July 31,
     1995                77,500           10,661       52,239     952,994      

Public Stock Offering       -            (10,064)     982,947   3,448,642  

Net Income for the year     -               -            -           -  
                        --------        --------     ---------   --------
Balance @ July 31,
     1996                77,500              597    1,035,186   4,401,636       

Debt to Equity
     conversion             -                -      1,408,787    (227,623)

Additional shares issued
     to employees           -                -        359,500    (341,500)

Net loss for the year       -                -           -           -      
                        ---------        --------   ---------    ---------     

Balance @ July 31,
     1997               $ 77,500        $    597  $ 2,803,473  $3,782,513
                        =========       ========= ===========  ==========

												
                    Conolog Corporation
         Statement of Stockholders' Equity (Deficiency)
					
                         Total
                       Earnings        Treasury        Equity
                        (Deficit)       Stock       (Deficiency)

Balance @ July 31,
     1994           $ (2,383,794)   $ (131,734)    $ (1,422,134)

Net loss for the year   (522,044)          -           (522,044)
                       ----------    ----------     ------------ 
Balance @ July 31,
     1995             (2,905,838)     (131,734)      (1,944,178)

Public Stock Offering   (396,587)         -           4,024,938

Net Income for the year  293,552          -             293,552
                       ---------    -----------     -----------
Balance @ July 31,
     1996             (3,008,873)    (131,734)        2,374,312

Debt to Equity
     conversion             -             -           1,131,164

Additional shares issued
     to employees           -             -              18,000

Net loss for the year   (672,080)          -           (672,080)
                      -----------    ---------         ----------

Balance @ July 31,
     1997            $(3,680,953)   $(131,734)       $2,851,396


































See notes to the financial statements


					Conolog Corporation
				          Statements of Cash Flows

						Year Ended July 31,
                                           1997         1996         1995
                                        -----------  ----------  ------------
Cash Flows From Operating Activities
  Net Income (Loss)                     $ (672,080) $   293,552  $  (522,044)
  Adjustments to Reconcile Net Income
     to Net Cash Provided (Used) by
     Operating Activities			     
  Common stock base compensation            18,000         -             -
  Deferred income taxes                       -         492,352     (492,352)
  Depreciation and amortization             57,781       64,994       60,396
  Gain on disposition of equipment            -          (3,420)        -
  Provision for losses on accounts
     receivable `                          (8,000)        9,000         -
(Increase) Decrease in Operating Assets
  Accounts receivable                     202,449      (141,479)      74,529
  Inventories                            (236,012)     (339,653)     392,058
  Other current assets                       (568)      (17,834)      (3,394)
Increase (Decrease) in Operating Liabilities
  Accounts payable                        (92,119)       (7,001)      12,330
  Accrued expenses and other liabilities   76,335    (1,068,177)     417,484
                                        -----------  ------------   ---------
       Net Cash Used by Operating Activities
                                         (654,214)    (717,666)      (60,993)
Cash Flows From Investing Activities
  Purchase of property, plant and equipment
                                          (11,680)     (43,163)      (19,625)
  Proceeds from sale of equipment            -          18,666          -
                                        ----------    ---------     ---------
       Net Cash Used in Investing Activities
                                          (11,680)     (24,497)      (19,625)
Cash Flows From Financing Activities
  Deferred offering costs                (113,813)      86,154       (86,154)
  Increase from public stock offering        -       4,421,525          -
  Proceeds from borrowings               916,235          -             -
  Increase (Decrease) in bridge loan     200,000      (200,000)      200,000
  Repayments of long-term borrowings     (34,453)   (2,836,008)      (38,681)
  (Increase) reduction in other assets    22,929       (20,580)          325
  Dividends paid                            -         (396,587)         -
  Increase (Decrease) in due to officers    -         (161,705)        17,302
                                        ---------   -----------     ----------
       Net Cash Provided by Financing
         Activities                       990,898      892,799         92,792
                                        ----------  -----------     ----------
Net Increase in Cash                      325,004      150,636         12,174
Cash at Beginning of Period               178,213       27,577         15,403
                                        -----------  ----------      ---------
Cash at End of Period                   $ 503,217    $ 178,213       $ 27,577
                                        =========    ==========      =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for
     Interest Paid                      $  77,349    $ 772,773       $ 102,816
     Taxes Paid                         $  10,084    $     125       $      50

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
   Capitalized lease stock obligations incurred for use of
     equipment                          $   -        $     -         $  56,550
  Additional common stock was issued upon conversion of
     $1,131,164 of long-term debt and accrued interest payable




See notes to the financial statements

				Conolog Corporation
			Notes to the Financial Statements


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business
     The  principal  business  activity  of  Conolog  Corporation
     (the "Company") is the design, manufacturing and distribution
     of  small  electronic  and  electromagnetic  components  and 
     subassemblies  for  use  in  telephone,  radio  and microwave
     transmission 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.

Revenue Recognition
     Sales are recognized when  the products  are shipped.  Sales
     under  certain  fixed-price-type contracts,  where  progress
     payments are received, are recognized when work is performed,
     under the percentage-of-completion method,in accordance with
     Statement of  Position 81.1,  Accounting  for Performance of
     Construction Type  and Certain Production-Type
     contracts.

Inventories
    Inventories  are stated  principally at average cost which is
    not in excess of 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.


Income (Loss) Per Share of Common Stock
     Income  (loss)  per share  of common  stock is  computed  by 
     dividing  net earnings  (loss) (after dividends on preferred
     shares)  by the weighted  average number of shares of Common
     Stock  outstanding during the year.   The effect of assuming 
     the exchange of the Series A Preferred Stock  and the Series
     B Preferred Stock in 1997 and 1995 would be anti-dilutive.

Income Taxes
     Deferred income taxes have been provided  for in  accordance
     with Statement No, 109 of the Financial Accounting Standards
     Board.  Deferred income taxes arise from  timing differences
     resulting  from  income  and  expense  items  reported  for
     financial  accounting and tax purposes in different periods.
     Deferred  taxes  are  classified as  current  or noncurrent,
     depending on the classification of the assets and liabilities
     to which they related.   Deferred taxes arising from  timing
     differences  that are  not  related to an asset or liability
     are  classified as  current or  noncurrent  depending on the
     periods  in which the  timing  differences  are  expected to
     reverse.

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  asssets  and  liabilities  and  disclosures  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.

WRITE-OFF OF OBSOLETE OR EXCESS INVENTORIES

     During 1997, the Company recorded a write-off of obsolete or
     excess  inventories of $28,101.   During  1996 and 1995, the
     Company  recorded  a  write-off of  obsolete  or  excess
     inventories of $50,281 and $656,248, respectively.

     This  inventory  write-off  was  military  related.      In
     management's  opinion  these items will not be reordered in
     the foreseeable future.

NOTES PAYABLE - BANK

     On September 11, 1996  the  Company entered into an  allonge
     agreement with the bank,  whereby  the bank may  at any time
     before  April 15,  1997  convert the  then unpaid amount  of
     principal  and  interest  due under the Amended and Restated
     Term  Notes  dated  as  of  August 2,  1995  in the original
     principal amount of $1,025,000 into 1,400,000 shares of  the
     Company's Common Stock (the "Note Shares").

     On September 12,  1996,  the bank entered into an option and
     purchase,  sale  and  assignment  agreement   (the  "Option
     Agreement")  with CNL Holdings, Inc  (CNL)  whereby the bank
     would sell the Note Shares referred to above, along with the
     375,000  common shares of the Company it currently owns (the
     "Bank Shares") for $1,500,000 to CNL.

     On September 12, 1996  CNL entered  into an  agreement  with
     the Company whereby the Company would  use its best  efforts
     to file a  Registration  Statement  with  the Securities and
     Exchange Commission covering the 375,000 Bank Shares and the
     1,400,000 Note Shares  (collectively the "Acquired Shares").
     Such  Registration  Statement shall be declared effective as
     soon as possible after the filing thereof,  and kept current
     and  effective for  a period of two years or until such time
     as all shares registered pursuant  therewith have  been sold
     or otherwise transferred.    The proceeds of the sale of the
     Acquired  Shares  shall be  applied  as follows:   The first
     $1,500,000 shall be paid  to reimburse CNL for payments made
     to the bank pursuant to the Option Agreement.  Fifty percent
     of the balance of  the proceeds not  to  exceed  $2,500,000,
     shall be loaned  to the Company by CNL.   The balance of the
     proceeds belong to CNL.   The  amounts loaned by  CNL to the
     Company shall  be evidenced  by notes  which  shall  be  due
     twelve months after making such loan and shall bear interest
     at the rate of 4% per annum.   At maturity of the loans, the
     Company  will have  the option to repay the loan balance and
     accrued  interest by issuing  a new Series C Preferred Stock
     (the  "Preferred Stock")  valued  at  $5.00  per share.  The
     Preferred  Stock  will  be  non-voting  and  will  carry  a
     cumulative dividend of 8% per annum, which may be payable by
     the  issuance of shares of common stock valued at  $5.00 per
     share up to a maximum of 40,000 shares per annum.

     On  January  31,  1997,  the  Bank  and Conolog entered into
     Amendment  No.  1  to  the  Option  and  Purchase,  Sale and
     Assignment Agreement  dated September 12, 1996.  The amended
     Option  Agreement now provides that on or before February 5,
     1997,  CNL will  purchase  from  the  Bank for an  aggregate
     purchase price of  $600,000 no  less than (i) 133,333 shares
     of Common Stock for $399,999, subject to the approval of IAR
     Securities  Corp.  and  (ii)  $200,001  of  the  Debt  Claim
     represented by the note.   CNL  thereafter may  exercise the
     remainer of the option on or  before  April  15,  1997.   In
     addition,  CNL may purchase from the  Bank additional shares
     of Common Stock owned by the Bank at the price o f $3.00 per
     share and portions of the Debt Claim from time to time.   On
     February 3,  1997,  CNL paid the Bank $600,000  consummating
     the purchase of the  above  200,000 shares.   On January 31,
     1997,  $200,001  of  the  Debt  to  the  Bank  was  adjusted
     resulting in all accrued interest in the amount o f $106,298
     being reduced and the remainding being applied to principal.

     On March 26, 1997, CNL completed the exercise of the "Option
     Agreement"  with the  Bank effectively eliminating all debts
     and liens with the Bank.

NOTES PAYABLE - OTHER

     CNL Holdings,  Inc.  loaned the Company  $916,235.  The notes
     will be due during the fiscal year July 31,1998 and shall bear
     interest at the rate of 4%  per annum.  The loans are payable
     in cash or Series C Preferred Stock, at the Company's  option
     at $5.00  per  share.  Interest is payable in Common Stock up
     to a maximum of  40,000 shares per annum.

     There is no relationship between  CNL Holdings Inc. and the
     Company except as specifically detailed above.

BRIDGE LOAN

     The Company received $200,000 in net proceeds from several
     investors in a private placement.    Each investor received
     two  (2)  Promissory  Notes.  Promissory Notes (the  "Final
     Note") totaling $150,000 are due and payable on the earlier
     of  Janury 31, 1999  or the  closing  of the Company's next
     public offering.  The Second Convertible Note (the  "Second
     Note"),  totaling  $50,000 plus accrued interest is payable
     on  the  earlier  of January 31, 1999 or the closing of the
     Company's next public offering,  or convertible at the time
     the next Registration  Statement is declared  effective  by
     the Securities and Exchange Commission and at the option of
     the selling security holders into  a total  of  1.2 million
     Class A Warrants.  Each Class A Warrant  contained  in  the
     Second Note  is  identical  to the Company's currently out-
     standing Class A Warrants.  


LEASES

     The Company  leases  automobiles,  machinery and  equipment,
     and office furniture and fixtures under leases which  expire
     over the next three years.  The rental payments are based on
     minimum  rentals  and  charges  for  mileage  in  excess  of
     specified  amounts  for  the  automobiles.   The  leases for
     machinery and equipment and furniture and fixtures contain a
     bargain  purchase option exercisable after the initial lease
     term.

     Property, plant and equipment include the following amounts
     for leases that have been capitalized.

                                                July 31,
                                           1997          1996
    Machinery and Equipment             $ 303,574     $ 303,574
    Less allowance for amortization       273,538       263,832
                                        ---------     ---------
                                        $  30,036      $ 39,742
                                        =========      ========

     Lease amortization is included in depreciation expense.

     Future  minimum  payments,  by year and  in the  aggregaate,
     under capital leases consisted of the following as of July
     31, 1997.

     1998
     ----
     Total minimum lease payments               $ 4,208
     Less amounts representing interest             406
                                                -------
     Present value of net minimum lease payments  3,802
     Less current maturities of capitalized
        lease obligations                         3,802
                                                -------
     Long-term capitalized lease obligations    $     0

     The Company  leases various  equipment under  noncancellable
     operating  leases  expiring  through  July  2000.   Future
     minimum  rental  payments  under the above  leases  are  as
     follows:

     Year Ended July 31,
     -------------------
          1998                  $ 4,808
          1999                    4,808
          2000                    4,808
                                -------
                                $14,424
                                =======
     Total rental expense for all operating leases of the Company
     amounted to approximately $7,659, $10,353, and $11,447 during
     the years ended July 31, 1997, 1996 and 1995, respectively.

CAPITAL STOCK

     The Series A  Preferred Stock provides  4%  ($.02  per share)
     cumulative dividends, which were $86,800 in arrears at  July
     31, 1997. 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 the payment of $1,200 per share.
     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 $27,937 in arrears at July 31,
     1997.    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  155,392 shares of Common Stock for
     Series A and B Preferred Stock.

EXTRAORDINARY ITEM

     On August 16,  1995 the Company's Bank debt was restructured
     resulting  in debt  forgiveness of $1,232,728.  This created
     a deferred tax asset at  July 31,  1995 of  $492,352.   When
     the debt forgiveness occurred,  the Company  wrote  off  its
     deferred tax asset against the forgiveness of debt,resulting
     in extraordinary income of $740,376.

INCOME TAXES

     Income taxes are comprised of the following:

                                                July 31
                                        1997         1996        1995
     Deferred Income Taxes (Benefit) $   -        $    -       $ (492,352)
     Current Income Taxes
        Federal                         9,884          -             -
        State                             200          200            100
                                     ---------    ---------     -----------
                                     $ 10,084     $    200      $ (492,252)
                                     ========     =========     ============

     Taxable  income differs from financial statement  income due
     to the effect of non-deductible  permanent  tax differences.
     These  permanent  tax  differences  include  officer's  life
     insurance premiums and non-deductible entertainment expenses.

     At July 31, 1997 the Company has a net operating loss carry-
     forward of approximately $2,671,000 for financial  reporting
     purposes and approximately $2,443,000 for tax purposes which
     is available of offset future Federal  taxable income.   For
     Federal purposes,  $253,000  of the  carryforward expires in
     2008,  $1,232,000  expires in  2009 and  $957,000 expires in
     2010.   For state purposes the carryforward is approximately
     $1,604,000,  $706,000  expires in 2001 and  $898,000 expires
     in 2002.  Also at July 31, 1997  the Company  has unused tax
     credits  available  of  approximately   $103,000  of  which
     $12,100 expires in 2000, $26,300 in 2001 and $64,900 in 2002.

     The above net operating loss created deferred tax asset that
     has been fully reserved.  The amount is $1,329,286.

MAJOR CUSTOMERS AND EXPORT SALES

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

                                Sales to
                                Major       Number of    Percentage
    Year Ended                  Customers   Customers    of Total
    ----------                  ---------   ---------    -----------
       1997                     $ 625,134       3            57
       1996                       401,840       1            21
       1995                       424,849       1            20

     During  1997 the Company had no export sales.  During 1996
     the Company had export sales of $401,840 and none and 1995.

SUBSEQUENT EVENTS

     On September  12,  1997  the  Company  filed a Registration
     Statement (S-1) with the Securities and Exchange Commission.
     This statement covers the primary offering of securities by
     the Company and the offering of other securities by certain
     selling security  holders.    The Company  is  registering,
     under the primary prospectus 805,000 Units, each consisting
     of one  (1)  share of  Common Stock  and four  (4)  Class A
     Warrants.  The selling  security  holders  are  registering
     under an alternate prospectus 1,200,000 Class A Warrants.

     At July 31, 1997 all  costs  associated  with this offering
     were deferred.  These  costs  will  be  deducted  from  the
     proceeds from the sale of stock.