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

|                                                                                              | 
|--------------------------------------------------------------------------------------------- | 
|þ   ANNUAL REPORT
 PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
 EXCHANGE ACT OF 1934    
|                                                                                             
|For
 the Fiscal Year Ended July 31, 2012                                                     
|                                                                                             
|OR                                                                                           
|                                                                                             
|o   TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
 EXCHANGE ACT OF 1934

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

|                                                               |  |                          |  |                                        
|-------------------------------------------------------------- |  | ------------------------ |  | ---------------------------------------
|Delaware                                                       |  |                          |  | 22-1847286                             
|                                                               |  |                          |  |                                        
|(State or other jurisdiction of incorporation or organization) |  | (Commission File Number) |  | (I.R.S. Employer Identification Number)

5 COLUMBIA ROAD, 
SOMERVILLE, NJ 08876 (Address of principal executive offices,
including zip code)

(908) 722-8081(Registrants telephone number, including area code)

Securities registered pursuant to Section
12(b) of the Act: None

Securities registered pursuant to Section
12(g) of the Act:

Common Stock, $0.01 par value

Indicate by check mark whether the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post
such files). Yes þ No o

Indicate by check mark if disclosure of delinquent
    filers in response to Item 405 of Regulation S-K is not contained herein,
    and will not 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 this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on December 20, 2012,
based on a closing price of $.06 was approximately $1,186,802.

As of December 20, 2012, the registrant had 21,683,066 shares of its common stock, par value $0.01, outstanding.

---



CONOLOG
CORPORATION
FOR THE FISCAL YEAR ENDED
JULY 31, 2012

INDEX
TO REPORT ON FORM 10-K

|         |                                                                                                                 |  |     
|-------- | --------------------------------------------------------------------------------------------------------------- |  | ----
|         |                                                                                                                 |  | Page
|         |                                                                                                                 |  |     
|PART I   |                                                                                                                 |  |     
|         |                                                                                                                 |  |     
|ITEM 1.  | BUSINESS.                                                                                                       |  | 3   
|ITEM 1A. | RISK FACTORS.                                                                                                   |  | 9   
|ITEM 2.  | PROPERTIES.                                                                                                     |  | 9   
|ITEM 3.  | LEGAL PROCEEDINGS.                                                                                              |  | 9   
|ITEM 4.  | MINE SAFETY DISCLOSURES                                                                                         |  | 9   
|         |                                                                                                                 |  |     
|PART II  |                                                                                                                 |  |     
|         |                                                                                                                 |  |     
|ITEM 5.  | MARKET
 FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
 PURCHASES OF EQUITY SECURITIES. |  | 9   
|ITEM 6.  | SELECTED FINANCIAL DATA.                                                                                        |  | 11  
|ITEM 7.  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.                          |  | 11  
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                                                     |  | 16  
|ITEM 8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                                                                    |  | 16  
|ITEM 9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.                           |  | 16  
|ITEM 9A. | CONTROLS AND PROCEDURES.                                                                                        |  | 16  
|ITEM 9B. | OTHER INFORMATION.                                                                                              |  | 18  
|         |                                                                                                                 |  |     
|PART III |                                                                                                                 |  |     
|         |                                                                                                                 |  |     
|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.                                                         |  | 18  
|ITEM 11. | EXECUTIVE COMPENSATION.                                                                                         |  | 21  
|ITEM 12. | SECURITY
 OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
 MATTERS.               |  | 22  
|ITEM 13. | CERTAIN
 RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.                                     |  | 24  
|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES.                                                                         |  | 24  
|         |                                                                                                                 |  |     
|PART IV  |                                                                                                                 |  |     
|         |                                                                                                                 |  |     
|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES.                                                                        |  | 25  

1

---



FORWARD
LOOKING STATEMENTS

This Form 10-K and the
documents incorporated by reference in this Form 10-K contain forward-looking
statements that are subject to risks and uncertainties. All statements other
than statements of historical fact contained in this document and the materials
accompanying this document are forward-looking statements.

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

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

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

2

---



PART
I

ITEM
1. BUSINESS.

GENERAL
INFORMATION

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

HISTORY

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

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

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

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

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

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

During the year ended
July 31, 2001, we formed a wholly owned subsidiary, Lonogoc Corporation
(Currently inactive). In August, 2000, Lonogoc Corporation purchased the assets
of Independent Computer Maintenance Corporation, which provided installation,
maintenance, and troubleshooting of computer systems and networks. On October
22, 2002, we entered an agreement to rescind the Asset Purchase Agreement
between us and Independent Computer Maintenance Corporation. Under the
rescission agreement, Conolog and its subsidiary agreed to transfer all assets
previously purchased pursuant to the Asset Purchase Agreement, to the extent
they still exist, to the former seller. The return of the purchase price paid
for the assets was $600,000, $300,000 in cash at closing, a note, which is
secured by a first mortgage on a condominium, for $150,000 bearing an interest
rate of 7.5% of which will be paid over 24 months in equal monthly installments
of $6,750 per month beginning December 2002, and an unsecured note receivable
for $137,350 payable over 10 years beginning December 2004 bearing an interest
rate of 5%. During fiscal 2009, the maker of the note stopped making payments
on this note receivable and the Company reserved $83,100 at July 31, 2009.
During fiscal 2010 the maker of the note made only one payment of $1,610. The
Company filed legal action and a Judgment was granted in favor of the Company.
On March 28, 2011, the Company entered into a settlement agreement with
Independent Computer Maintenance Corporation in which the Company received a
payment of $10,000. This case is now closed.

In March 2004, we ceased
operating our staffing business. The assets of our wholly-owned subsidiary,
Nologoc, Inc.

3

---



trading as Atlas Design,
were sold to the subsidiarys Vice President. In consideration of the sale, we
received $34,000 in cash.

PRODUCTS

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

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

OUR
STRATEGY

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

FIBER
OPTIC MONITORING

The expansion of fiber
lines by our customers and their need to switch equipment from phone lines to
fiber prompted us to design and introduce a fiber-optic line of switches and
monitoring. Conolog has recognized an absence in the fiber optic market of a
physical layer switch. Fidra couples any manufacturers fiber optic equipment
to inter-station fiber optic line. With delay measured in the thousandths of a
second, Fidra can convert signals between fiber types, act as a repeater,
in-line level monitor, and can eliminate the need to ever disconnect an
operational fiber from its device

Passive fiber level
monitoring is the design of GlowWorm, our patent pending product that can be
utilized to determine the transmission level of fiber signals without the need of
splicing or cutting a fiber optic cable in any way.

PRESENT
STATUS/BUSINESS PRODUCT DESCRIPTION

We market and sell our
products to three basic types of customers:

4

---



| |    |                                                                           |   |                                      
| | -- | ------------------------------------------------------------------------- | - | -------------------------------------
| | 1) | Military Sales                                                           
| |    |                                                                           | § | Direct contract sales to military    
| |    |                                                                           | § | As subcontractor to systems producers
| |    |                                                                           | § | Foreign governments                  
| |    |                                                                           |   |                                      
| | 2) | Commercial Sales (Under the trade name INIVEN (a
 Division of Conolog))
| |    |                                                                           | § | Direct sales to end-users            
| |    |                                                                           | § | Sales to system assemblers           
| |    |                                                                           | § | Sales to contractors/installers      
| |    |                                                                           |   |                                      
| | 3) | Commercial Sales - As Manufacturing Subcontractor to
 Systems Producers. 

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

| |    |                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------
| | 1) | PTR and PDR
 Teleprotection Series (Protective Tone Relaying Communications Terminal),
 which includes the PTR-1500 and
 PDR-2000.            
| |    |                                                                                                                                               
| | 2) | Audio Tone &
 Telemetry Equipment (Audio Tone Control, Telemetering and Data
 Transmission Systems), which includes
 Series 98, and GEN-1.
| |    |                                                                                                                                               
| | 3) | Multiplex Supervisory
 Control System                                                                                                         
| |    |                                                                                                                                               
| | 4) | Communication Link
 Multihead Fiber Optic Switches and Fiber Optic Monitoring Solutions.                                                      

PTR AND
PDR TELEPROTECTION SERIES

This product is designed
for use exclusively by electric power generators (electric utilities and
co-generators) in order to protect their transmission and distribution lines.
The PTR-1500, by monitoring the output signal of the transmission equipment in
less than one hundredth of a second protects the transmission and distribution
lines.

The PTR-1500 is installed
in pairs, one unit at each end of the line. Each unit is connected and in
constant communication with the other, as they continuously monitors the line
for faults. In the event of a fault occurring (such as a downed line or a short
circuit) at either end and when confirmed by the receiving PTR-1500 unit, the
line is immediately isolated for shut down, averting costly damage and
downtime.

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

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

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

The PTR/PDR market is:

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

5

---



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | Existing installations for upgrading to PTR/PDR
 technology, again improving efficiency and down time.

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

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

| |   |                                     
| | - | ------------------------------------
| |  | Municipal Systems                   
| |   |                                     
| |  | Cooperative Systems                 
| |   |                                     
| |  | Federal, State and
 District Systems

98
AND GEN-1 SERIES

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

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

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

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

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

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.

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

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

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

6

---



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

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

Sales of these products
are made by the same agents who sell our GEN-1 products, but are also directed
to encompass more sophisticated users with larger amounts of data and control
points. The mechanical configuration of the 98 series is more compact,
permitting more equipment in a given space.

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.

MILITARY
SALES

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

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

MARKETING
AND SALES

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

COMPETITION

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

MAJOR
CUSTOMERS

Our major customers
during fiscal 2012 and 2011:

|                       |  |      |         |      |  |       |  |   |           |  |  |       |  
|---------------------- |  | ---- | ------- | ---- |  | ----- |  | - | --------- |  |  | ----- | -
|                       |  | 2012 |         | 2011 | 
|                       |  |      |         |      |  |       |  |   |           |  |  |       |  
|Customer 1             |  | $    | 347,039 |      |  | 41.7% |  | $ | 747,457   |  |  | 44.2  | %
|Customer 2             |  |      | 196,283 |      |  | 23.6% |  |   | 453,238   |  |  | 26.8  | %
|Customer 3             |  |      |         |      |  |       |  |   | 173,092   |  |  | 10.2  | %
|                       |  |      |         |      |  |       |  |   |           |  |  |       |  
|                       |  | $    | 543,322 |      |  | 65.3% |  | $ | 1,373,787 |  |  | 81.2  | %
|                       |  |      |         |      |  |       |  |   |           |  |  |       |  
|                       |  |      |         |      |  |       |  |   |           |  |  |       |  
|Total Product Revenues |  | $    | 831,718 |      |  | 100%  |  | $ | 1,691,852 |  |  | 100.0 | %
|                       |  |      |         |      |  |       |  |   |           |  |  |       |  

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

INVENTORY
- RAW MATERIALS

We believe that we have
adequate sources of raw materials available for use in our business. Our
products are

7

---



assembled from a variety
of standard electronic components and sub-assemblies, such as integrated
circuits, transformers, transistors, passive components (i.e., resistors,
capacitors and inductors), diodes and assorted hardware, such as, printed
circuit boards, connectors and faceplates. We are not dependent upon any single
supplier.

MANUFACTURING

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

WARRANTY
AND SERVICE

The Company provides a
twelve-year warranty on all commercial products and is required by government
regulation to design and produce military products with a minimum 25-year
operating life in addition to shelf life. The Company, at its option, repairs
or replaces products that are found defective during the warranty period
providing proper preventive maintenance procedures have been followed by
customers. Repairs that are necessitated by misuse of such products are not
covered by our warranty. In cases of defective products, the customer typically
returns them to our facility in Somerville, New Jersey. Our service personnel
then replace or repair the defective items and ship them back to the customer.
Generally all servicing is completed at our plant and customers are charged a
fee for those service items that are not covered by the warranty. We do not
offer our customers any formal written service contracts.

RESEARCH
AND DEVELOPMENT

New
Products 

GlowWorm
Fiber Optic Detector, is an independent, standalone product
for detection of fiber optic cable failures without the need to cut the cable.
It was introduced in September 2010. The Company has a Patent Pending on this
product. Marketing is being focused on non-traditional Conolog customers.

Fidra
is an active, multifunction fiber network physical switch, designed to monitor,
reroute, repeat, boost, and disable up to three (3) fiber optic communication
pairs. While initial development of Fidra is completed, additional development
is needed to offer additional versions that will allow us to serve more
applications.

PATENTS
AND TRADEMARKS

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

GOVERNMENTAL
REGULATION

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

EMPLOYEES

As of July 31, 2012, we
employed 14 people on a full-time basis. We have enjoyed good labor relations.

8

---



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

ITEM 1A. RISK FACTORS.

We are a smaller reporting company as defined in Rule 12b-2 of the
Exchange Act and are not required to provide the information required under
this item.

ITEM 2. PROPERTY.

Our principal executive offices are located at 5 Columbia Road,
Somerville, New Jersey. The space consists of approximately 7,000 square feet
of which approximately 5,000 square feet is dedicated to manufacturing,
production and testing and approximately 2,000 square feet is dedicated to
administrative and storage needs. Our current monthly rent expense is $6,380.
In the opinion of management, the space is adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS.

We are currently not involved in any litigation that we believe could
have a material adverse effect on our financial condition or results of
operations. There is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the executive officers of
our company or any of our subsidiaries, threatened against or affecting our
company, our common stock, any of our subsidiaries or of our companies or our
subsidiaries officers or directors in their capacities as such, in which an
adverse decision could have a material adverse effect.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

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

(a) Market Information

MARKET PRICE FOR COMMON STOCK

The Companys Common Stock is listed on the OTCQB under the under the
symbol CNLG. The following table sets forth the quarterly high and low sale
prices for our common shares for the last two completed fiscal years and the
subsequent interim periods. The prices set forth below represent interdealer
quotations, without retail markup, markdown or commission and may not be
reflective of actual transactions.

Common
Stock

|                 |  |      |      |     |  |      | 
|---------------- |  | ---- | ---- | --- |  | ---- | 
|Fiscal Year 2012 |  | High |      | Low | 
|                 |  |      |      |     | 
|First
Quarter    |  |      | 0.08 |     |  | 0.05 | 
|Second
Quarter   |  |      | 0.12 |     |  | 0.06 | 
|Third
Quarter    |  |      | 0.10 |     |  | 0.05 | 
|Fourth
Quarter   |  |      | 0.11 |     |  | 0.05 | 

9

---



Common
Stock

|                 |  |      |      |     |  |      | 
|---------------- |  | ---- | ---- | --- |  | ---- | 
|Fiscal Year 2011 |  | High |      | Low | 
|                 |  |      |      |     | 
|First
Quarter    |  |      | 0.92 |     |  | 0.50 | 
|Second
Quarter   |  |      | 0.65 |     |  | 0.30 | 
|Third
Quarter    |  |      | 0.38 |     |  | 0.10 | 
|Fourth
Quarter   |  |      | 0.12 |     |  | 0.07 | 

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

(b) Holders

As of July 31, 2012, there were 391 holders of record of our common
stock. This figure does not take into account those shareholders whose
certificates are held in the name of broker-dealers or other nominees.

(c) Dividends

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

The Series A Preferred Stock provides 4% cumulative
    dividends, which were $133,183 ($0.86 per share) and $130,083 ($0.84 per shares)
    in arrears at July 31, 2012 and July 31, 2011, respectively. In addition,
    each share of Series A Preferred Stock may be exchanged for one share of
    Common Stock upon surrender of the Preferred Stock and payment of $5,760,000
    (due to reverse stock splits) per share. The Company may redeem the Series
    A Preferred Stock at $.50 per share plus accrued and unpaid dividends. The
    liquidation preference of the Series A Preferred Stock was $210,683 and $207,583
    at July 31, 2012 and July 31, 2011, respectively.

The Series B Preferred Stock provides cumulative
    dividends of $0.90 per share, which were $44,250 ($36.97 per share) and $43,173
    ($36.07 per share) in arrears at July 31, 2012 and July 31, 2011, respectively.
    In addition, each share of Series B Preferred Stock is convertible into 005
    of one share of Common Stock. The liquidation preference of the Series B
    Preferred Stock is the dividend in arrears plus $15 per share. The liquidation
    preference was $62,205 and $61,128 at July 31, 2012 and July 31, 2011, respectively.

(d) Securities Authorized for Issuance under
Equity Compensation Plan

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

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

*Represents application of reverse stock
splits.

10

---



ITEM 6. SELECTED FINANCIAL DATA

The Company does not have any significant trends in its financial
condition or results of operations to be disclosed.

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

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

Overview

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

11

---



transmission lines and the tripping or blocking of protection circuits
in the case of faults.

Description of Revenues

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

Description of Expenses

Our expenses include the following: (i) Costs of revenues, which consists primarily of costs to
manufacture the products we ship, these costs include raw materials, direct
labor, overhead expenses associated with manufacturing and freight shipping
costs; (ii) General and administrative
(G&A) expenses, which consists of compensation and benefits for all
non-manufacturing employees, compensation costs also includes stock-based
awards to employees and directors. Also included in G&A expenses is
professional services for legal, accounting and business consultants, as well
as, rent, depreciation and general corporate expenditures.; and (iii) Selling costs, consisting mainly of
commissions and trade shows expenditures; (iv) Research and Development expenses represent the costs of our
development efforts related to new products; (v) Other income (expense) consist of interest income on cash and cash
equivalents, interest expense consist of interest expense on convertible
debentures. Other expenses consist of change in fair value of derivatives
associated with the convertible debentures, along with amortization of debt
discount and deferred financing fees also associated with the convertible
debentures.

Results of Operations

Year Ended July 31, 2012 Compared with the
Year Ended July 31, 2011

Operating Revenues:

The majority of the Companys sales revenue
    has been generated from sales of the PDR-2000 Teleprotection products. Our
    total sales revenue decreased $860,134 or 50.8% for the fiscal year ended
    July 31, 2012 to $831,718 compared to total revenues of $1,691,852 for the
    fiscal year ended July 31, 2011. Our PDR-2000 sales decreased approximately
    $858,324 or 58.2% over the prior year due to a decrease in demand. The decrease
    is thought to be a reduction in projects by our customers for the 2012 fiscal
    year. PTR-1500 sales increased $9,741 or 27.8%. Telemetry sales decreased
    $13,164 or 15% due to the natural rhythm of our markets. We expect this category
    to further decline in the coming years. Military sales decreased $10,163
    or 13% due to cut backs in the governments military spending for 2012. Repairs
    and sales of spare parts increased as a result of the life cycle of some
    of our products.

|                                                                                 |  |      |         |            |  |      |   |            |           |          |  |       |   |   |          |   |  |     |  
|-------------------------------------------------------------------------------- |  | ---- | ------- | ---------- |  | ---- | - | ---------- | --------- | -------- |  | ----- | - | - | -------- | - |  | --- | -
|Sales changes by product line for the fiscal years ended July 31, 2012
and 2011.
|                                                                                
|Products sold                                                                    |  | 2012 |         | % to
total |  | 2011 |   | % to
total |           | $ change |  | % chg |  
|                                                                                 |  |      |         |            |  |      |   |            |           |          |  |       |  
|                                                                                 |  |      |         |            |  |      |   |            |           |          |  |       |   |   |          |   |  |     |  
|PDR-2000 digital teleprotection                                                  |  | $    | 616,676 |            |  | 74   | % | $          | 1,475,000 |          |  | 87    | % | $ | (858,324 | ) |  | -58 | %
|PTR-1500 analog teleprotection                                                   |  |      | 44,741  |            |  | 5    | % |            | 35,000    |          |  | 2     | % |   | 9,741    |   |  | 28  | %
|Telemetry equipment                                                              |  |      | 77,836  |            |  | 10   | % |            | 91,000    |          |  | 5     | % |   | (13,164  | ) |  | -15 | %
|Military Sales                                                                   |  |      | 67,037  |            |  | 8    | % |            | 77,200    |          |  | 5     | % |   | (10,163  | ) |  | -13 | %
|Spare parts                                                                      |  |      | 20,187  |            |  | 2    | % |            | 6,000     |          |  | 0     | % |   | 14,187   |   |  | 237 | %
|Repairs                                                                          |  |      | 6,150   |            |  | 1    | % |            | 11,952    |          |  | 1     | % |   | (5,802   | ) |  | -49 | %
|Discounts                                                                        |  |      | (909    | )          |  | 0    | % |            | (4,300    | )        |  | 0     | % |   | 3,391    |   |  | -74 | %
|                                                                                 |  |      |         |            |  |      |   |            |           |          |  |       |   |   |          |   |  |     |  
|Net Sales Revenues                                                               |  | $    | 831,718 |            |  | 100  | % | $          | 1,691,852 |          |  | 100   | % | $ | (860,134 | ) |  | -51 | %
|                                                                                 |  |      |         |            |  |      |   |            |           |          |  |       |   |   |          |   |  |     |  

12

---



Cost of Revenue:

Total product cost of goods sold for the fiscal year ended July 31,
2012 amounted to $429,427 compared to $1,175,038 for the fiscal year ended July
31, 2011, a decrease of $745,611 or 63.5%. The decrease in cost of goods sold is
primarily a result of the sales volume of the PDR-2000 decreasing 58.2% versus
the prior year.

Operating Expenses:

General
and Administrative: For the fiscal year ended July 31,
2012, general and administrative expenses decreased $667,537 to $2,017,512 from
$2,685,049. This decrease of approximately 24.9% can mostly be attributed the
following: (a) a decrease of $585,474 in professional fees and a decrease of
stock expense of $197,143 both related to the restatement, in the fiscal year
ended July 31, 2011, of financial data for the fiscal years ended July 31, 2009
and July 31, 2010; and (b) a decrease of $142,366 in insurance premiums due to
lower premiums for some policies. These reductions were offset by (c) an
increase of $155,401 for labor costs booked directly to expense, rather than
inventory; (d) an increase in Employee Stock Compensation Expense of $102,449;
and (e) an increase of $12,760 in rent expense.

Research
and Development: For
the fiscal year ended July 31, 2012 research and development cost was $80,433,
an increase of $12,411. or 18.2%, versus the prior year total of $68,022. Our
research and development costs can mainly be attributed to enhancing the FIDRA,
GlowWorm, and PDR-2000 products.

Selling
Expenses: For the
fiscal year ended July 31, 2012 selling expense was $316,001, an increase of
$50,174 or 18.9% versus the prior year total of $265,827. The increase is
mainly due to the increase of $176,852 in marketing related to campaigns for
the FIDRA and GlowWorm products. This increase was offset by (a) a decrease of
$70,696 in commission expenses due to a large decrease in sales; and (b) a
decrease of approximately $50,000 in travel and entertainment.

Total Other Income and Expenses:

For the fiscal year ended July 31, 2012, other
    income/expense was expense of $16,941, a decrease of $1,799,916 versus the
    fiscal year ended July 31, 2011. This large decrease in other expense is
    primarily a result of recording a derivative liability associated with a
    subscription agreement entered into in fiscal year 2010. The subscription
    agreement entered into on August 3, 2009, had a conversion feature embedded
    in the Companys
    convertible debt and certain warrants that required the recording of a derivative
    liability in the amount of $1,806,518 in fiscal year 2011.

Income Tax Benefit:

In 1998, the State of New Jersey enacted legislation allowing emerging
technology and/or biotechnology companies to sell their unused New Jersey Net
Operating Loss (NOL) Carryover and Research and Development Tax Credits
(R&D Credits) to corporate taxpayers in New Jersey. During fiscal years
ended July 31, 2012, the Company entered into agreements to sell up to $5,707,131
of its unused tax losses. The Company received net proceeds of $227,945 during
the fiscal year ended July 31, 2012, related to the sale and accordingly
recorded them as a tax benefit in the year received. The net tax benefit
recorded in the Statement of Operations for 2012 of $226,361 consists of the
proceeds received from the sale of the Companys NJ NOLs offset New Jersey
State tax refunds of $4,800 and New Jersey state tax expense of $6,384.

Net Loss:

The
Company recorded a net loss of $1,802,235 for the fiscal year ended July 31,
2012, as compared to a net loss of $4,322,733 for fiscal year ended July 31,
2011. For the fiscal year ended July 31, 2012 gross profit decreased $114,523
and general and administrative decreased $667,537 compared to the prior fiscal
year. Research and development was up versus the prior period by $12,411, as
was selling expense by $50,174. As a result of the

13

---



foregoing,
the Company reported net loss applicable to common shares of ($0.10) basic and
diluted loss per share compared to ($0.43) basic and diluted loss per share for
the fiscal year ended July 31, 2011.

LIQUIDITY AND CAPITAL RESOURCES

We
have had recurring losses from operations of $2,011,656 and $2,502,084 for the
fiscal year ended July 31, 2012 and 2011, respectively and used cash in
operations in the amounts of $747,105 and $1,055,549 for the fiscal year ended
July 31, 2012 and 2011, respectively. At July 31, 2012, the Company had cash
and equivalents of $70,359.

At
July 31, 2012, the Company had total current assets of $743,621 and total
current liabilities of $2,301,756, resulting in working capital deficit of
$1,558,135. The Companys current assets consists of $70,359 in cash and cash
equivalent, $132,747 in accounts receivable, $497,235 in inventory and $43,280 in
prepaid expenses and other current assets. Accounts receivable decreased from
$476,435 at July 31, 2011 to $132,747 at July 31, 2012. This decrease in our
accounts receivable is the result of a sales decrease of $860,134 for the fiscal
year ended July 31, 2012 and the timing of collections.

The
Company entered into subscription agreements, as amended, with 27 accredited
investors for the issuance and sale of an aggregate of 6,754,072 shares in the
Companys common stock, par value $.01 per share for an aggregate purchase
price of $0.10 per share. During the fiscal year ended July 31, 2012, the
Company received proceeds of $675,407 from the subscribers in connection
with this Private Placement. The Company used the proceeds of the placement for
general corporate purposes, including general and administrative expenses.

The
Company entered into a second subscription agreement, as amended, with 19
accredited investors for the issuance and sale of an aggregate of 802,000
shares in the Companys common stock, par value $.01 per share and 1,604,000
warrants for an aggregate purchase price of $0.25 per share and two warrants.
Each warrant entitles the holder purchase one share of the Companys common
stock at an exercise price of $.01. During the fiscal year ended July 31, 2012,
the Company received proceeds of $200,500 from the subscribers in connection
with this Private Placement. The Company used the proceeds of the placement for
general corporate purposes, including general and administrative expenses.

Our
operations have been, and will continue to be, funded from existing cash
balances and private placements of equity funding. During our fiscal year ended
July 31, 2012, we have raised $875,907 from the sale of common stock and
$115,000 from loans made to the company by Robert Benou.
During the fiscal year ended July 31, 2012, Mr. Benou received repayments totaling
$181,350 for loans made by him during the fiscal year ended July 31, 2011. We are
dependent on improved operating results and raising additional funds over the
next twelve month period. There are no assurances that we will be able to raise
additional funding. In the event that we are unable to generate sufficient cash
flow or receive proceeds from offerings of debt or equity securities, the
Company may be forced to curtail or cease it activities and/or operations.

OPERATING ACTIVITIES

Net cash used in operating activities was approximately
    $747,000 for the fiscal year ended July 31, 2012, as compared to approximately
    $1,056,000 net cash used in operating activities for the fiscal year ended
    July 31, 2011, a decrease of $309,000. This decrease in use of cash can be
    attributed to: (a) operational activities using approximately $611,000 less
    than in the previous year; and (b) decreases in accounts receivable of approximately
    $786,000. Offsetting these increases were (c) increases in prepaid expenses
    of approximately $160,000 over the previous year; (d) increases in inventories
    of approximately $505,000; (e) decreases in accounts payable of approximately
    $225,000; and (f) decreases in accrued expenses of approximately $195,000
    over the prior year.

INVESTING ACTIVITIES

There was no net cash used in investing activities for the fiscal
year ended July 21, 2012. For the fiscal year ended July 31, 2011 net cash used investing activities was approximately $6,000 resulting
from the purchase of equipment.

14

---



FINANCING ACTIVITIES

Net cash provided from financing activities was approximately $810,000
for the fiscal year ended July 31, 2012, as compared to approximately $356,000 provided in during the fiscal year ended July 31,
2011. During the fiscal year ended July 31, 2012 the Company received proceeds of approximately $876,000 from sale of common stock compared to approximately $100,000
the prior year. In addition, the Company received proceeds of approximately $115,000 during the fiscal year ended July 31, 2012 from the issuance
of notes payable to a Company officer, as opposed to approximately $316,000 received in the fiscal year ended July 31, 2011. Repayments
of approximately $181,000 were made against notes payable to the officer during
the fiscal year ended July 31, 2012 and approximately $60,000 in repayments were made in the fiscal year ended July 31, 2011.

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.



15

---



ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.

We do not hold any derivative instruments and do not engage in any
hedging activities.

ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA.

The financial statements of Conolog Corporation, together with notes
and the Independent Registered Public Accountants Report, begin on page F-1,
immediately after the signature page.

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

During
the fiscal year ended July 31, 2012, we did not have disagreements with our
independent registered public accounting firm, Wolinetz, Lafazan & Company,
P.C., on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.

During
the Companys two most recent fiscal years, there were no reportable events as
defined under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.

ITEM 9A CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures

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

16

---



During evaluation of disclosure controls and procedures as of the end
of the period covered by this report, conducted as part of the Companys annual
audit and preparation of our annual financial statements, several material
weaknesses were identified. As a result of the material weaknesses, described
more fully below, our Chief Executive Officer and Chief Financial Officer
concluded that, as of July 31, 2012, the Companys disclosure controls and
procedures were not effective.

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

Managements Annual Report on Internal
Control over Financial Reporting

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

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

A material weakness is a deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Companys annual or interim
financial statements will not be prevented or detected on a timely basis. Based
on managements assessment of internal control over financial reporting,
management believes as of July 31, 2012, the Companys internal control over
financial reporting was not effective due to the following material weaknesses:

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

Remediation of Material Weaknesses in
Internal Control over Financial Reporting

The Company has commenced efforts to address the material weaknesses in
its internal control over financial reporting and its control environment
through the following actions:

| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | Supplementing existing resources with technically qualified third
party consultants.
| |  | Institute a more stringent approval process for financial
transactions              

17

---



| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Perform additional procedures and analysis for significant
transactions as a mitigating control in the control environment due to
segregation of duties issues.

The Company believes that the consolidated financial statements fairly
present, in all material respects, the Companys consolidated balance sheets as
of July 31, 2012 and 2011 and the related consolidated statements of
operations, stockholders equity, and cash flows for the years ended July 31,
2012 and 2011, in conformity with generally accepted accounting principles,
notwithstanding the material weaknesses we identified.

Changes in Internal Control Over Financial
Reporting

There have been no changes in the Companys internal control over
financial reporting during the most recently completed fiscal year ended July
31, 2012, that have materially affected or are reasonably likely to materially
affect the Companys internal control over financial reporting.

Inherent Limitations on Effectiveness of
Controls

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

ITEM 9B - OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE

The following table and biographical summaries set forth information,
including principal occupation and business experience, about our directors and
executive officers at [November 13, 2012]:

|                 |  |    |     |                              |          |               |  |                              
|---------------- |  | -- | --- | ---------------------------- | -------- | ------------- |  | -----------------------------
|NAME             |  |    | AGE |                              | POSITION |               |  | OFFICER
AND/OR DIRECTOR SINCE
|                 |  |    |     |                              |          |               |  |                              
|                 |  |    |     |                              |          |              
|Robert S.
Benou  |  | 77 |     | Chairman,
CEO, CFO, Director |          | February
1968
|Marc R.
Benou    |  | 43 |     | President                    |          | March 1995   
|Louis S. Massad  |  | 75 |     | Director                     |          | April 1995   
|Edward J.
Rielly |  | 43 |     | Director                     |          | January 1998 
|David M.
Peison  |  | 43 |     | Director                     |          | October 2004 
|Michael Horn     |  | 59 |     | Director                     |          | August 2011  

Robert S. Benou

Robert S. Benou has been the Companys Chairman and Chief Executive
Officer since May 1, 2001. He is also the Companys Chief Financial Officer.
From 1968 until May 1, 2001, he served as the Companys President. Mr. Benou is
responsible for material purchasing and inventory control. From June 2001 until
August 2005, Mr. Benou served as a director of Henry Bros. Electronics, Inc.
(formerly known as Diversified Security Solutions, Inc.), a publicly held
company that is a single-source/turnkey provider of technology-based security
solutions for medium and large companies and government agencies. Mr. Benou is
also served as a member of the Board of Directors of eXegenics

18

---



Inc. from February 2004 to December 2006. The common stock of eXegenics
Inc. is traded on the OTC Bulletin Board. Mr. Benou is a graduate of Victoria
College and holds a BS degree from Kingston College, England and a BSEE from
Newark College of Engineering, in addition to industrial management courses at
Newark College of Engineering. Robert S. Benou is the father of Marc R. Benou.
Mr. Benous experience as the Companys chief executive officer led to the
conclusion that Mr. Benou should serve on the Board of Directors, given the
Companys business and structure.

Marc R. Benou

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

Louis S. Massad

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

Edward J. Rielly

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

David M. Peison

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

Michael
Horn,

Michael Horn has been a Director of the Company
    since August 2011. On November 13, 2012, the Board of Directors accepted
    Marc Benous resignation for the position of Secretary and appointed
    Mr. Horn to the positions of Vice President and Secretary. Mr. Horn has
    over 30 years of experience in Information Technology senior management.
    Mr. Horn has served as the Managing and Operating Partner of VAR Direction
    LLC, Inc., a management and financial consulting firm, from 2002 through
    the present. Mr. Horn served as Chief Executive Officer of AccountMate Software,
    Division of Softline, N.A., a publisher of accounting software,

19

---



from 2001 to 2002. From 1980 through 2001, Mr. Horn was the Chief Executive
Officer of MIBAR Computer Services, a value added reseller and developer of
software.

Board of
Directors

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.

Board Leadership Structure and Role in Risk
Oversight

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

Family Relationships

Our Chief Executive Officer, Robert S. Benou is the father of our
President, Marc R. Benou. There are no other family relationships among our
directors, executive officers, or persons nominated or chosen by the Company to
become directors or executive officers.

Audit Committee

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

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

Changes in Nominating Procedures

None.

Section 16(a) Compliance

Section 16(a) of the Exchange Act requires the Companys directors,
executive officers and persons who beneficially own 10% or more of a class of
securities registered under Section 12 of the Exchange Act to file reports of
beneficial ownership and changes in beneficial ownership with the SEC.
Directors, executive officers and greater than 10% stockholders are required by
the rules and regulations of the SEC to furnish the Company with copies of all
reports filed by them in compliance with Section 16(a).

Based solely on our review of certain reports filed with the Securities
and Exchange Commission pursuant to Section 16(a) of the Securities Exchange
Act of 1934, as amended, the reports required to be filed with respect to
transactions in our common stock during the fiscal year ended July 31, 2012,
were timely.

Code of Ethics

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

20

---



ITEM 11- EXECUTIVE COMPENSATION

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

|                                   |  |                     |  |        |         |         |   |                     |  |                           |   |                                     |                        |              |  |       |   |  |   |   |  |   |        |  
|---------------------------------- |  | ------------------- |  | ------ | ------- | ------- | - | ------------------- |  | ------------------------- | - | ----------------------------------- | ---------------------- | ------------ |  | ----- | - |  | - | - |  | - | ------ | -
|                                   |  |                     |  |        |         |         |   |                     |  |                           |   |                                     | Long Term Compensation |             
|                                   |  | Annual Compensation |  | Awards |         | Payouts |  
|Name and
 PrincipalPosition        |  | Year                |  | Salary |         | Bonus   |   | Other Annual
 Comp. |  | Restricted
 Stock
 Awards |   | Securities
 UnderlyingOptions /SARs |                        | LTIP Payouts |  | Other |  
|                                  
|Robert Benou                       |  | 2012                |  | $      | 450,000 |         | $ |                    |  | $                         |  |                                     |                        | 150,000      |  | $     |  |  | $ |  |  | $ | 42,000 | *
|Chief Executive Officer,           |  |                     |  |        |         |         |   |                     |  |                           |   |                                     |                        |              |  |       |   |  |   |   |  |   |        |  
|Chief Financial Officer,
 Director |  | 2011                |  | $      | 334,167 |         | $ |                    |  | $                         |  |                                     |                        |             |  | $     |  |  | $ |  |  | $ | 12,000 | *
|                                   |  |                     |  |        |         |         |   |                     |  |                           |   |                                     |                        |              |  |       |   |  |   |   |  |   |        |  
|                                   |  | 2010                |  | $      | 259,749 |         | $ |                    |  | $                         |  |                                     |                        | 403,200      |  | $     |  |  | $ |  |  | $ | 28,000 | *
|                                   |  |                     |  |        |         |         |   |                     |  |                           |   |                                     |                        |              |  |       |   |  |   |   |  |   |        |  
|Mark Benou                         |  | 2012                |  | $      | 243,125 |         | $ |                    |  | $                         |  |                                     |                        | 160,000      |  | $     |  |  | $ |  |  | $ | 11,412 | *
|President, COO,                    |  |                     |  |        |         |         |   |                     |  |                           |   |                                     |                        |              |  |       |   |  |   |   |  |   |        |  
|Director                           |  |                     |  |        |         |         |   |                     |  |                           |   |                                     |                        |              |  |       |   |  |   |   |  |   |        |  
|                                   |  | 2011                |  | $      | 199,023 |         | $ |                    |  | $                         |  |                                     |                        |             |  | $     |  |  | $ |  |  | $ |       |  
|                                   |  |                     |  |        |         |         |   |                     |  |                           |   |                                     |                        |              |  |       |   |  |   |   |  |   |        |  
|                                   |  | 2010                |  | $      | 238,200 |         | $ |                    |  | $                         |  |                                     |                        | 403,200      |  | $     |  |  | $ |  |  | $ |       |  

|  |              
|- | -------------
|* | Car allowance

|             |  |                                                                  |  |                                                                    |  |                                                                                               |  |                          |  |                      |  |                                                              |  |                                                                   |  |                                                                                                        |  |                                                                                                                     | 
|------------ |  | ---------------------------------------------------------------- |  | ------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------- |  | ------------------------ |  | -------------------- |  | ------------------------------------------------------------ |  | ----------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------- | 
|Name         |  | Options
 Awards                                                  |  | Stock
 Awards                                                      | 
|             |  |                                                                  |  |                                                                    | 
|             |  | Number
 ofSecuritiesUnderlyingUnexercisedOptions
 (#)Exercisable |  | Number
 ofSecuritiesUnderlyingUnexercisedOptions
 (#)Unexercisable |  | EquityIncentivePlan
 Awards:Number
 ofSecuritiesUnderlying
 ofUnexercisedUnearnedOptions
 (#) |  | OptionExercisePrice
 ($) |  | OptionExpirationDate |  | Number
 ofShares
 orUnits
 ofStock
 ThatHave
 NotVested
 (#) |  | MarketValue
 ofShares
 orUnits
 ofStock
 ThatHave
 NotVested
 ($) |  | EquityIncentivePlan
 Awards:Number
 ofUnearnedShares,Units
 orOther
 RightsThat
 HaveNot
 Vested 
 (#) |  | EquityIncentivePlan
 Awards:Market
 orPayoutValue
 ofUnearnedShares,Units
 orOther
 RightsThat
 HaveNot
 Vested ($) | 
|             |  |                                                                  |  |                                                                    |  |                                                                                               |  |                          |  |                      |  |                                                              |  |                                                                   |  |                                                                                                        |  |                                                                                                                     | 
|            
|Robert Benou |  | 0                                                                |  | 0                                                                  |  | 0                                                                                             |  | 0                        |  | 0                    |  | 0                                                            |  | 0                                                                 |  | 0                                                                                                      |  | 0                                                                                                                   | 
|             |  |                                                                  |  |                                                                    |  |                                                                                               |  |                          |  |                      |  |                                                              |  |                                                                   |  |                                                                                                        |  |                                                                                                                     | 
|             |  |                                                                  |  |                                                                    |  |                                                                                               |  |                          |  |                      |  |                                                              |  |                                                                   |  |                                                                                                        |  |                                                                                                                     | 
|             |  |                                                                  |  |                                                                    |  |                                                                                               |  |                          |  |                      |  |                                                              |  |                                                                   |  |                                                                                                        |  |                                                                                                                     | 
|Marc Benou   |  | 0                                                                |  | 0                                                                  |  | 0                                                                                             |  | 0                        |  | 0                    |  | 0                                                            |  | 0                                                                 |  | 0                                                                                                      |  | 0                                                                                                                   | 

21

---



EMPLOYMENT AGREEMENTS

Mr. Robert Benou is serving under an employment agreement commencing
June 1, 1997 and ending May 31, 2002, which pursuant to its terms, renews for
one-year terms until cancelled by either the Company or Mr. Benou. Mr. Benous
annual base salary as of July 31, 2012 was $450,000 ((a) actual 2012 salary
drawn was $0, (b) $450,000 has been accrued for potential payment in the
future) .Mr. Benous annual base salary increases by $20,000 annually on January
1st of each year. In addition, Mr. Benou is entitled to an annual
bonus equal to 6% of the Companys annual income before income tax provision
as stated in its annual Form 10-K. The employment agreement also entitles Mr.
Benou to the use of an automobile and to employee benefit plans, such as; life,
health, pension, profit sharing and other plans. Under the employment
agreement, employment terminates upon death or disability of the employee and
the employee may be terminated by the Company for cause.

Mr. Marc Benou is serving under an employment agreement commencing May
3, 2012, through May 3, 2016, which pursuant to its terms, renews for one-year
terms until cancelled by either the Company or Mr. Benou. Mr. Benous annual
base salary between August 1, 2011 and May 2, 2012 was $264,500. Upon execution
of the new employment agreement, his base salary was reduced to $199,000. Mr.
Benous annual base salary on July 31, 2012 was $199,000 ((a) actual 2012
salary drawn was $84,467, (b) $158,658 has been accrued for potential payment
in the future). He receives annual increases of $3,000 on May 3rdof
each year. 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
financial statements. The employment agreement also entitles Mr. Benou to the
use of an automobile and to employee benefit plans, such as; life, health,
pension, profit sharing and other plans. Under the employment agreement,
employment is terminated upon death or disability of the employee and employee
may be terminated by the Company for cause (as defined in the employment agreement).

COMPENSATION OF DIRECTORS

No director of the Company receives any cash compensation for their
services as such, but directors may receive stock options pursuant to the
Companys stock option plan and grants of the Companys common stock.
Currently, the Company has four directors who are not employees, Messrs.
Michael Horn, Louis Massad, David Peison and Edward Rielly. During the year
ended July 31, 2012, these four directors each received 80,000 restricted
shares of the Companys common stock (par value $.01 per share).

RISK MANAGEMENT

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

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of July 31, 2012, certain
information with respect to the beneficial ownership of our common stock by
each stockholder known by us to be the beneficial owner of more than 5% of our
common stock and by each of our current directors and executive officers. Each
person has sole voting and investment power with respect to the shares of
common stock, except as otherwise indicated.

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

Under the rules of the Securities and Exchange Commission, a person is
deemed to be a beneficial owner of a security if that person has or shares
voting power, which includes the power to vote or direct the voting of the
security, or investment power, which includes the power to vote or direct the
voting of the security. The person is also deemed to be a beneficial owner of
any security of which that person has a right to acquire beneficial ownership
within 60 days. Under the Securities and Exchange Commission rules, more than
one person may be deemed to be a beneficial owner

22

---



of the same securities, and a person may be deemed to be a beneficial
owner of securities as to which he or she may not have any pecuniary beneficial
interest.

Shares of common stock which an individual or group has a right to
acquire within 60 days pursuant to the exercise or conversion of options are
deemed to be outstanding for the purpose of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in the
table. The applicable percentage of ownership at July 31, 2012 is based on
20,985,454 shares issued and outstanding.

|                             |  |                                                     |  |                           |  |                                       |      |   | 
|---------------------------- |  | --------------------------------------------------- |  | ------------------------- |  | ------------------------------------- | ---- | - | 
|Name and Address (1)         |  | BeneficialRelationship
  to Company                 |  | Outstanding
 Common Stock |  | Percentage of
 Ownership Common Stock |     
|                             |  |                                                     |  |                           |  |                                       |     
|                             |  |                                                     |  |                           |  |                                       |      |   | 
|Robert S
 Benou,             |  | CEO, Chairman,
 Chief Financial,
 Officer, Director |  | 870,027                   |  |                                       | 4.15 | % | 
|                             |  |                                                     |  |                           |  |                                       |      |   | 
|Marc R.
 Benou(2)            |  | President, Chief
 Operating Officer,

 Director     |  | 611,250                   |  |                                       | 2.91 | % | 
|                             |  |                                                     |  |                           |  |                                       |      |   | 
|Louis
 Massasd               |  | Director                                            |  | 117,500                   |  |                                       | 0.56 | % | 
|                             |  |                                                     |  |                           |  |                                       |      |   | 
|Edward J.
 Reilly            |  | Director                                            |  | 80,000                    |  |                                       | 0.38 | % | 
|                             |  |                                                     |  |                           |  |                                       |      |   | 
|David M.
 Peison             |  | Director                                            |  | 144,250                   |  |                                       | 0.69 | % | 
|                             |  |                                                     |  |                           |  |                                       |      |   | 
|Michael Horn(2)              |  | Secretary, Director                                 |  | 80,000                    |  |                                       | 0.56 | % | 
|                             |  |                                                     |  |                           |  |                                       |      |   | 
|                             |  |                                                     |  |                           |  |                                       |      |   | 
|Officers and Directors Total |  | 6                                                   |  | 1,903,027                 |  |                                       | 9.07 | % | 

| |     |                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Unless
 otherwise indicated, the address of each beneficial owner listed above is c/o
 Conolog Corporation 5 Columbia Road, Somerville, NJ 08876.
| |     |                                                                                                                                                  
| | (2) | On November 13, 2012, Marc R. Benou resigned as the Company's Secretary and the Board appointed Michael Horn to the position.                   

Preferred Stock

|                             |  |                                                     |  |                            |  |                                            | 
|---------------------------- |  | --------------------------------------------------- |  | -------------------------- |  | ------------------------------------------ | 
|Name                         |  | BeneficialRelationship 
 to Company                 |  | OutstandingPreferred Stock |  | Percentage ofOwnership of Preferred
 Stock | 
|                             |  |                                                     |  |                            |  |                                            | 
|                             |  |                                                     |  |                            |  |                                            | 
|Robert S
 Benou,             |  | CEO, Chairman,
 Chief Financial,
 Officer, Director |  |                           |  |                                           | 
|                             |  |                                                     |  |                            |  |                                            | 
|Marc R.
 Benou               |  | President, Chief
 Operating Officer,
 and Director  |  |                           |  |                                           | 
|                             |  |                                                     |  |                            |  |                                            | 
|Louis
 Massasd               |  | Director                                            |  |                           |  |                                           | 
|                             |  |                                                     |  |                            |  |                                            | 
|Edward J.
 Reilly            |  | Director                                            |  |                           |  |                                           | 
|                             |  |                                                     |  |                            |  |                                            | 
|David M.
 Peison             |  | Director                                            |  |                           |  |                                           | 
|                             |  |                                                     |  |                            |  |                                            | 
|Michael Horn                 |  | Secretary, Director                                 |  |                           |  |                                           | 
|                             |  |                                                     |  |                            |  |                                            | 
|Officers and Directors Total |  | 6                                                   |  |                           |  |                                           | 

23

---



ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTORS INDEPENENCE

Certain relationships and Related Transactions

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

Board Determination of Independence

The common stock of the Company is currently quoted on the OTCQB, an
exchange which currently does not have director independence requirements. On
an annual basis, each director and executive officer will be obligated to
disclose any transactions with the Company in which a director or executive
officer, or any member of his or her immediate family, have a direct or
indirect material interest in accordance with Item 407(a) of Regulation S-K.
Following completion of these disclosures, the Board will make an annual
determination as to the independence of each director using the current
standards for independence that satisfy the criteria for the NASDAQ.

As of July 31, 2012, the Board determined that Mr. Horn, Mr. Massad,
Mr. Peison, and Mr. Rielly are each independent as that term is defined under
by NASDAQ.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND
SERVICES

Audit Fee

The aggregate fees billed for each of the last
    two years for professional services rendered by Wolinetz, Lafazan & Co. for the audit of our annual financial statements and review of financial
    statements included in our Form 10-Q and 10-K reports and services normally
    provided by the accountant in connection with statutory and regulatory filings
    or engagements were approximately $125,000 and $83,000 for 2012 and 2011,
respectively.

Audit-Related Fees

No fees were billed during the years ended July 31, 2012 and July 31,
2011 for assurance and related services by Wolinetz, Lafazan & Company, PC
that are reasonably related to the performance of the audit or review of the
Companys financial statements and are not reported under the category Audit
Fees described above.

Tax Fees

No fees were billed during the years ended July 31, 2012 and July 31,
2011 for tax compliance, tax advice, or tax planning services by Wolinetz,
Lafazan & Company, PC that are reasonably related to the performance of the
audit or review of the Companys financial statements and are not reported
under the category Audit Fees described above.

All Other Fees

No fees were
billed to the Company by Wolinetz, Lafazan & Company, PC during the year
ended July 31, 2012 and 2011 for services not described above.

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

24

---



PART IV

ITEM 15  EXHIBITS

|            |                                                                                                                                                                                                                                                   
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. | Description
 of Exhibits                                                                                                                                                                                                                          
|            |                                                                                                                                                                                                                                                   
|3.1         | Certificate
 of Incorporation** -                                                                                                                                                                                                                 
|            |                                                                                                                                                                                                                                                   
|3.1.1       | Certificate
 of Amendment of Certificate of Incorporation - **                                                                                                                                                                                    
|            |                                                                                                                                                                                                                                                   
|3.1.2       | Certificate
 of Amendment of Certificate of Incorporation of DSI Systems, Inc. **                                                                                                                                                                 
|            |                                                                                                                                                                                                                                                   
|3.1.3       | Certificate
 of Ownership and Merger with respect to the merger of Data Sciences
 (Maryland) into the Registrant and the change of Registrants name from Data
 Sciences Incorporated to DSI Systems, Inc.**                                  
|            |                                                                                                                                                                                                                                                   
|3.1.4       | Certificate
 of the Designation, Preferences and Relative, Participating, Option or Other
 Special Rights and Qualifications, Limitations or Restrictions thereof of the
 Series A Preferred Stock (par value $.50) of DSI Systems, Inc.**        
|            |                                                                                                                                                                                                                                                   
|3.1.5       | Certificate
 of the Designation, Preferences and Relative, Participating, Option or Other
 Special Rights and Qualifications, Limitations or Restrictions thereof of the
 Series B Preferred Stock (par value $.50) of DSI Systems, Inc.**        
|            |                                                                                                                                                                                                                                                   
|3.1.6       | Certificate
 of Ownership and Merger of Conolog Corporation (New Jersey) by DSI Systems,
 Inc.**                                                                                                                                                  
|            |                                                                                                                                                                                                                                                   
|3.1.7       | Certificate
 of Amendment of Certificate of Incorporation.**                                                                                                                                                                                      
|            |                                                                                                                                                                                                                                                   
|3.2         | Amended
 By-Laws - incorporated by reference to Exhibit 3(h) to the Registrants
 Annual Report on Form 10-K for the fiscal year ended July 31, 1981.                                                                                             
|            |                                                                                                                                                                                                                                                   
|4.1         | Promissory
 Note in the amount of $100,000, issued by Conolog Corporation in favor of
 Robert Benou (incorporated by reference to exhibit 4.1 of the Registrants
 Current Report on Form 8-K filed with the Commission on April 4, 2012)          
|            |                                                                                                                                                                                                                                                   
|10.1        | Employment
 Agreement dated June 1, 1997 between Robert Benou and Conolog Corporation
 (incorporated by reference to Exhibit 10.1 of the Registrants Annual Report
 on Form 10-K filed with the Commission on November 30, 2010).                 
|            |                                                                                                                                                                                                                                                   
|10.1.1      | Amendment
 Employment Agreement dated February 18, 1999 between Robert Benou and Conolog
 Corporation (incorporated by reference to Exhibit 10.1.1 of the Registrants
 Annual Report on Form 10-K filed with the Commission on November 30, 2010).
|            |                                                                                                                                                                                                                                                   
|10.2        | Employment
 Agreement dated May 3, 2012 between Marc Benou and Conolog Corporation.*                                                                                                                                                              
|            |                                                                                                                                                                                                                                                   
|10.3        | Form of
 Subscription Agreement by and among Conolog Corporation and the subscribers
 named therein (incorporated by reference to Exhibit 10.1 of the Registrants
 Current Report on Form 8-K filed with the Commission on October 12, 2011).     
|            |                                                                                                                                                                                                                                                   
|10.4        | Amendment to
 Subscription Agreement by and among Conolog Corporation and the subscribers
 named therein (incorporated by reference to Exhibit 10.2 of the Registrants
 Current Report on Form 8-K filed with the Commission on October 12, 2011).
|            |                                                                                                                                                                                                                                                   
|14.1        | Code of
 Ethics (incorporated by reference to Registrants Annual Report on Form
 10-KSB for the fiscal year ended July 31, 2003, filed with the Commission on
 November 14, 2003)                                                                

25

---



|     |                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------
|23.1 | Incorporated
 by reference to the Registrants Registration Statements on Forms S-8 filed on
 May 25, 2007, July 8, 2008 and February 1, 2010.
|     |                                                                                                                                              
|31.1 | Rule
 13a-14a/15d-14a Certification of Robert Benou (PRINCIPAL EXECUTIVE OFFICER
 AND PRINCIPAL FINANCIAL OFFICER)*                          
|     |                                                                                                                                              
|32.1 | Section 1350
 Certification of Robert Benou (PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL
 FINANCIAL OFFICER)*                                  
|     |                                                                                                                                              
|*    | Filed
 herewith                                                                                                                              
|**   | Incorporated
 by reference to the Registrants Statement on Form SB-2 filed with the
 Securities and Exchange on February 18, 2005.          

26

---



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Conolog Corporation

|                |                                    |                     
|--------------- | ---------------------------------- | --------------------
|                | By:                                | /s/ Robert
 S. Benou
|                |                                    |                     
|                |                                   
|January 7, 2013 | Chairman,
 Chief Executive Officer
|                | Chief
 Financial Officer          

In accordance
with the Exchange Act of 1934, this report has been signed below by the
following persons, on behalf of the registrant and in the capacities and on the
dates indicated.

|                |                                                  | 
|--------------- | ------------------------------------------------ | 
|January 7, 2013 | /s/Robert S.
 Benou                             
|                |                                                 
|                |                                                  | 
|                | Chairman,
 Chief Executive Officer and          
|                | Chief
 Financial Officer                        
|                |                                                  | 
|January 7, 2013 | /s/Marc R.
 Benou                               
|                |                                                 
|                |                                                  | 
|                | President,
 Chief Operating Officer and Director
|                |                                                  | 
|January 7, 2013 | /s/ Michael
 Horn                               
|                |                                                 
|                |                                                  | 
|                | Director, Secretary                             
|                |                                                  | 
|January 7, 2013 | /s/Louis S.
 Massad                             
|                |                                                 
|                |                                                  | 
|                | Director                                        
|                |                                                  | 
|January 7, 2013 | /s/Edward J.
 Rielly                            
|                |                                                 
|                |                                                 
|                | Director                                        
|                |                                                  | 
|January 7, 2013 | /s/David M.
 Peison                             
|                |                                                 
|                |                                                  | 
|                | Director                                        

27

---



PART F/S

INDEX TO FINANCIAL STATEMENTS

AUDITED FINANCIAL STATEMENTS

|                                                                                                                          |  |    
|------------------------------------------------------------------------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm                                                                   |  | F-1
|                                                                                                                          |  |    
|Consolidated Balance Sheets At July 31, 2012 and 2011                                                                     |  | F-2
|                                                                                                                          |  |    
|Consolidated Statements of Operations for the years ended July 31,
 2012 and 2011                                         |  | F-3
|                                                                                                                          |  |    
|Consolidated Statement of Changes in
       Stockholders Equity (Deficiency) for the
 years ended July 31, 2012 and 2011 |  | F-4
|                                                                                                                          |  |    
|Consolidated Statements of Cash Flows for the years ended July 31,
 2012 and 2011                                         |  | F-5
|                                                                                                                          |  |    
|Notes to Financial Statements                                                                                             |  | F-6



---



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



Board of Directors and StockholdersConolog Corporation and Subsidiaries

We have audited the accompanying consolidated
balance sheets of Conolog Corporation and Subsidiaries (“the Company”) as of July 31, 2012 and 2011 and the related
consolidated statements of operations, stockholders equity (deficiency) and cash flows for each of the two years in the period
ended July 31, 2012. 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
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion. Also, an audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of Conolog Corporation
and Subsidiaries at July 31, 2012 and 2011, and the results of their operations and their cash flows for each of the two years
in the period ended July 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements
have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company has incurred significant losses from operations for the years ended July 31, 2012 and 2011. In addition,
at July 31, 2012 the Company has a significant working capital and stockholders deficiency. These factors raise substantial
doubt about the Companys ability to continue as a going concern. Managements plans regarding those matters are also described
in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



WOLINETZ, LAFAZAN &
COMPANY, P.C.



Rockville Centre, New YorkJanuary 7, 2013

F-1

---



CONOLOG CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets 
July 31,

|                                                                                                                                                                              |  |      |             |      |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                                                                                                                                                                              |  | 2012 |             | 2011 |  
|                                                                                                                                                                              |  |      |             |      |  
|ASSETS                                                                                                                                                                        |  |      |             |      |   |             |  
|Current Assets:                                                                                                                                                               |  |      |             |      |   |             |  
|Cash and equivalents                                                                                                                                                          |  | $    | 70,359      |      | $ | 7,907       |  
|Accounts receivable, net of allowance                                                                                                                                         |  |      | 132,747     |      |   | 476,435     |  
|Inventory, net of reserve for obsolescence                                                                                                                                    |  |      | 497,235     |      |   | 389,489     |  
|Prepaid expenses                                                                                                                                                              |  |      | 43,280      |      |   | 25,932      |  
|Other current assets                                                                                                                                                          |  |      |            |      |   | 259         |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Total Current Assets                                                                                                                                                          |  |      | 743,621     |      |   | 900,022     |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Property and equipment:                                                                                                                                                       |  |      |             |      |   |             |  
|Machinery and equipment                                                                                                                                                       |  |      | 1,362,952   |      |   | 1,362,952   |  
|Furniture and fixtures                                                                                                                                                        |  |      | 430,924     |      |   | 430,924     |  
|Automobiles                                                                                                                                                                   |  |      | 34,097      |      |   | 34,097      |  
|Computer software                                                                                                                                                             |  |      | 231,002     |      |   | 231,002     |  
|Leasehold improvements                                                                                                                                                        |  |      | 30,265      |      |   | 30,265      |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Total property and equipment                                                                                                                                                  |  |      | 2,089,240   |      |   | 2,089,240   |  
|Less: accumulated depreciation                                                                                                                                                |  |      | (2,018,442  | )    |   | (2,001,882  | )
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Net Property and Equipment                                                                                                                                                    |  |      | 70,798      |      |   | 87,358      |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|TOTAL ASSETS                                                                                                                                                                  |  | $    | 814,419     |      | $ | 987,380     |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|LIABILITIES
 AND STOCKHOLDERS DEFICIENCY                                                                                                                                     |  |      |             |      |   |             |  
|Current
 Liabilities:                                                                                                                                                         |  |      |             |      |   |             |  
|Accounts payable                                                                                                                                                              |  | $    | 377,427     |      | $ | 376,636     |  
|Accrued expenses                                                                                                                                                              |  |      | 1,734,329   |      |   | 1,033,002   |  
|Notes payable - Officer                                                                                                                                                       |  |      | 190,000     |      |   | 256,350     |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Total Current Liabilities                                                                                                                                                     |  |      | 2,301,756   |      |   | 1,665,988   |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Total Liabilities                                                                                                                                                             |  |      | 2,301,756   |      |   | 1,665,988   |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Commitments and Contingencies                                                                                                                                                 |  |      |             |      |   |             |  
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Stockholders Deficiency:                                                                                                                                                     |  |      |             |      |   |             |  
|Preferred stock, par value $.50; Series A; 4% cumulative; 500,000
 shares authorized 155,000 shares issued and outstanding at July 31, 2012 and
 July 31, 2011, respectively  |  |      | 77,500      |      |   | 77,500      |  
|Preferred stock, par value $.50; Series B; $.90 cumulative; 500,000
 shares authorized; 1,197 shares issued and outstanding at July 31, 2012 and
 July 31, 2011, respectively |  |      | 597         |      |   | 597         |  
|Common stock, par value $0.01; 30,000,000 shares authorized;
 21,592,450 shares issued at July 31, 2012 and 12,455,380 shares issued at
 July 31, 2011, respectively          |  |      | 215,925     |      |   | 124,554     |  
|Contributed capital                                                                                                                                                           |  |      | 80,873,283  |      |   | 79,971,148  |  
|Accumulated deficit                                                                                                                                                           |  |      | (82,522,908 | )    |   | (80,720,673 | )
|Less: Treasury shares at cost - 2 shares                                                                                                                                      |  |      | (131,734    | )    |   | (131,734    | )
|                                                                                                                                                                              |  |      |             |      |   |             |  
|Total Stockholders Deficiency                                                                                                                                                |  |      | (1,487,337  | )    |   | (678,608    | )
|                                                                                                                                                                              |  |      |             |      |   |             |  
|TOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY                                                                                                                                |  | $    | 814,419     |      | $ | 987,380     |  
|                                                                                                                                                                              |  |      |             |      |   |             |  

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

F-2

---



CONOLOG CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended July 31,

|                                                                         |  |      |            |      |   |            |  
|------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                         |  | 2012 |            | 2011 |  
|                                                                         |  |      |            |      |  
|OPERATING
 REVENUES                                                      |  |      |            |      |   |            |  
|Product revenue                                                          |  | $    | 831,718    |      | $ | 1,691,852  |  
|                                                                         |  |      |            |      |   |            |  
|                                                                         |  |      |            |      |   |            |  
|Cost of
 product revenue                                                 |  |      |            |      |   |            |  
|Cost of goods sold                                                       |  |      | 429,427    |      |   | 1,175,038  |  
|                                                                         |  |      |            |      |   |            |  
|                                                                         |  |      |            |      |   |            |  
|Total Cost of product revenue                                            |  |      | 429,427    |      |   | 1,175,038  |  
|                                                                         |  |      |            |      |   |            |  
|                                                                         |  |      |            |      |   |            |  
|Gross Profit                                                             |  |      | 402,291    |      |   | 516,814    |  
|                                                                         |  |      |            |      |   |            |  
|                                                                         |  |      |            |      |   |            |  
|OPERATING
 EXPENSES                                                      |  |      |            |      |   |            |  
|General and administrative                                               |  |      | 2,017,512  |      |   | 2,685,049  |  
|Research and development                                                 |  |      | 80,433     |      |   | 68,022     |  
|Selling expenses                                                         |  |      | 316,001    |      |   | 265,827    |  
|                                                                         |  |      |            |      |   |            |  
|Total operating expenses                                                 |  |      | 2,413,946  |      |   | 3,018,898  |  
|                                                                         |  |      |            |      |   |            |  
|Loss from Operations                                                     |  |      | (2,011,655 | )    |   | (2,502,084 | )
|                                                                         |  |      |            |      |   |            |  
|                                                                         |  |      |            |      |   |            |  
|OTHER
 INCOME (EXPENSES)                                                 |  |      |            |      |   |            |  
|Interest expense                                                         |  |      | (17,207    | )    |   | (75,230    | )
|Interest income                                                          |  |      | 75         |      |   | 339        |  
|Other income - legal settlement                                          |  |      | 191        |      |   | 10,000     |  
|Induced conversion cost                                                  |  |      |           |      |   | (649,147   | )
|Amortization of financing fees                                           |  |      |           |      |   | (382,132   | )
|Amortization of debt discount                                            |  |      |           |      |   | (720,687   | )
|                                                                         |  |      |            |      |   |            |  
|                                                                         |  |      |            |      |   |            |  
|Total Other Income (Expense)                                             |  |      | (16,941    | )    |   | (1,816,857 | )
|                                                                         |  |      |            |      |   |            |  
|Loss
 before provision for income taxes                                  |  |      | (2,028,596 | )    |   | (4,318,941 | )
|Income tax benefit (expense)                                             |  |      | 226,361    |      |   | (3,792     | )
|                                                                         |  |      |            |      |   |            |  
|NET LOSS APPLICABLE TO
 COMMON SHARES                                    |  | $    | (1,802,235 | )    | $ | (4,322,733 | )
|                                                                         |  |      |            |      |   |            |  
|                                                                         |  |      |            |      |   |            |  
|NET LOSS
 PER COMMON SHARE Basic and Diluted                             |  | $    | (0.10      | )    | $ | (0.43      | )
|                                                                         |  |      |            |      |   |            |  
|                                                                         |  |      |            |      |   |            |  
|WEIGHTED
 AVERAGE NUMBER OF COMMON SHARES OUTSTANDING  Basic and Diluted |  |      | 18,928,799 |      |   | 10,104,933 |  
|                                                                         |  |      |            |      |   |            |  

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

F-3

---



Conolog Corporation and Subsidiaries
Consolidated Statement of Changes in Stockholders Equity (Deficiency)
For the Years Ended July 31, 2012 and 2011

|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|--------------------------------------------------------------------------------- |  | --------------- |  | --------------- | ------ | ------------ | ----- | -------------------- | - | -------------------- |  | -------------- |  | ----- | ------- | ------ | - | ---------- | - | ------------------- | ----------- | - | - |  | - | -------- | - | - | ---------- | -
|                                                                                  |  | Series A        |  | Series B        |        |              |       |                      |   |                      |  |                |  |       |        
|                                                                                  |  |                 |  |                 |        |              |       | Contributed
 Capital |   | Accumulated
 Deficit |  | Treasury Stock |  | Total |        
|                                                                                  |  | Preferred Stock |  | Preferred Stock |        | Common Stock |       |                      |   |                      |  | Stockholders  | 
|                                                                                  |  | Shares          |  | Amount          |        | Shares       |       | Amount               |   | Shares               |  | Amount         |  |       |         | Shares |   | Amount     |   | Equity (Deficiency) |            
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |  
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|Balance at July 31, 2010                                                          |  | 155,000         |  | $               | 77,500 |              | 1,197 |                      | $ | 597                  |  | 6,967,881      |  | $     | 69,679  |        | $ | 78,088,878 |   | $                   | (76,397,940 | ) | 2 |  | $ | (131,734 | ) | $ | 1,706,980  |  
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|Conversion of convertible debentures and accrued interest                         |  |                 |  |                 |        |              |       |                      |   |                      |  | 3,562,999      |  |       | 35,630  |        |   | 1,677,307  |   |                     |            |   |   |  |   |          |   |   | 1,712,937  |  
|Issuance of common stock in exercise of Class C warrants in cashless
 transaction |  |                 |  |                 |        |              |       |                      |   |                      |  | 1,646,723      |  |       | 16,467  |        |   | (16,467    | ) |                     |            |   |   |  |   |          |   |   |           |  
|Sale of common stock to officer                                                   |  |                 |  |                 |        |              |       |                      |   |                      |  | 277,777        |  |       | 2,778   |        |   | 97,222     |   |                     |            |   |   |  |   |          |   |   | 100,000    |  
|Forgiveness of officers salary                                                    |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   | 124,208    |   |                     |            |   |   |  |   |          |   |   | 124,208    |  
|Net loss for the Year                                                             |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     | (4,322,733  | ) |   |  |   |          |   |   | (4,322,733 | )
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|Balance at July 31, 2011                                                          |  | 155,000         |  | $               | 77,500 |              | 1,197 |                      | $ | 597                  |  | 12,455,380     |  | $     | 124,554 |        | $ | 79,971,148 |   | $                   | (80,720,673 | ) | 2 |  | $ | (131,734 | ) | $ | (678,608   | )
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|Issuance of Common Stock and Warrants Pursuant to Private Placements              |  |                 |  |                 |        |              |       |                      |   |                      |  | 7,556,072      |  |       | 75,561  |        |   | 800,346    |   |                     |             |   |   |  |   |          |   |   | 875,907    |  
|Issuance of Common Stock for Services                                             |  |                 |  |                 |        |              |       |                      |   |                      |  | 694,286        |  |       | 6,943   |        |   | 51,257     |   |                     |             |   |   |  |   |          |   |   | 58,200     |  
|Issuance of Common Stock for
Services - Related Parties and Directors             |  |                 |  |                 |        |              |       |                      |   |                      |  | 620,000        |  |       | 6,200   |        |   | 49,600     |   |                     |             |   |   |  |   |          |   |   | 55,800     |  
|Contributed capital - related party in consideration for services rendered        |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   | 3,600      |   |                     |             |   |   |  |   |          |   |   | 3,600      |  
|Issuance of Anti-Dilution shares                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  | 266,712        |  |       | 2,667   |        |   | (2,667     | ) |                     |             |   |   |  |   |          |   |   |           |  
|Net loss for the Year                                                             |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     | (1,802,235  | ) |   |  |   |          |   |   | (1,802,235 | )
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  
|Balance at July 31, 2012                                                          |  | 155,000         |  | $               | 77,500 |              | 1,197 |                      | $ | 597                  |  | 21,592,450     |  | $     | 215,925 |        | $ | 80,873,283 |   | $                   | (82,522,908 | ) | 2 |  | $ | (131,734 | ) | $ | (1,487,337 | )
|                                                                                  |  |                 |  |                 |        |              |       |                      |   |                      |  |                |  |       |         |        |   |            |   |                     |             |   |   |  |   |          |   |   |            |  

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

F-4

---



CONOLOG CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows 
For the Years Ended July 31,

|                                                                   |  |      |            |      |   |            |  
|------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                   |  | 2012 |            | 2011 |  
|                                                                   |  |      |            |      |  
|CASH FLOWS
 FROM OPERATING ACTIVITIES                              |  |      |            |      |   |            |  
|Net loss                                                           |  | $    | (1,802,235 | )    | $ | (4,322,733 | )
|Adjustments
 to reconcile net loss to net cash used in operations: |  |      |            |      |   |            |  
|Depreciation                                                       |  |      | 16,560     |      |   | 14,598     |  
|Allowance for Doubtful Accounts                                    |  |      | (1,000     | )    |   | 32,866     |  
|Reserve of obsolete inventory parts                                |  |      | (14,000    | )    |   | (25,000    | )
|Write down of obsolete inventory parts                             |  |      |           |      |   | 50,000     |  
|Amortization of common stock issued for services                   |  |      |           |      |   | 80,000     |  
|Amortization of deferred financing fees                            |  |      |           |      |   | 382,132    |  
|Amortization of discount of convertible debentures                 |  |      |           |      |   | 720,687    |  
|Induced conversion cost associated with convertible debt           |  |      |           |      |   | 649,147    |  
|Employee Stock expense paid directly by a related party            |  |      | 3,600      |      |   |           |  
|Employee stock expense                                             |  |      | 99,000     |      |   |           |  
|Common stock issued for services                                   |  |      | 15,000     |      |   |            |  
|Forgiveness of salaries by officers of the company                 |  |      |           |      |   | 124,208    |  
|                                                                   |  |      |            |      |   |            |  
|Changes in
 assets and liabilities                                 |  |      |            |      |   |            |  
|(Increase) decrease in accounts receivable                         |  |      | 344,688    |      |   | (441,698   | )
|(Increase) decrease in prepaid expenses                            |  |      | (17,348    | )    |   | 142,364    |  
|(Increase) decrease in inventories                                 |  |      | (93,746    | )    |   | 411,590    |  
|(Increase) decrease in other current assets                        |  |      | 259        |      |   | 4,742      |  
|Increase (decrease) in accounts payable                            |  |      | 790        |      |   | 225,756    |  
|Increase (decrease) in accrued expenses                            |  |      | 701,327    |      |   | 895,792    |  
|                                                                   |  |      |            |      |   |            |  
|NET CASH
 USED IN OPERATIONS                                       |  |      | (747,105   | )    |   | (1,055,549 | )
|                                                                   |  |      |            |      |   |            |  
|                                                                   |  |      |            |      |   |            |  
|CASH FLOWS
 FROM INVESTING ACTIVITIES                              |  |      |            |      |   |            |  
|Purchase of property and equipment                                 |  |      |           |      |   | (5,899     | )
|                                                                   |  |      |            |      |   |            |  
|NET CASH
 USED IN INVESTING ACTIVITIES                             |  |      |           |      |   | (5,899     | )
|                                                                   |  |      |            |      |   |            |  
|CASH FLOWS
 FROM FINANCING ACTIVITIES                              |  |      |            |      |   |            |  
|Proceeds from issuance of common stock and warrants                |  |      | 875,907    |      |   | 100,000    |  
|Proceeds from Notes Payable - Officer                              |  |      | 115,000    |      |   | 316,350    |  
|Payments 0f Notes Payable - Officer                                |  |      | (181,350   | )    |   | (60,000    | )
|                                                                   |  |      |            |      |   |            |  
|NET CASH
 PROVIDED BY FINANCING ACTIVITIES                         |  |      | 809,557    |      |   | 356,350    |  
|                                                                   |  |      |            |      |   |            |  
|                                                                   |  |      |            |      |   |            |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS               |  |      | 62,452     |      |   | (705,098   | )
|CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR                      |  |      | 7,907      |      |   | 713,005    |  
|                                                                   |  |      |            |      |   |            |  
|CASH AND CASH EQUIVALENTS - END OF YEAR                            |  | $    | 70,359     |      | $ | 7,907      |  
|                                                                   |  |      |            |      |   |            |  

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

F-5

---



CONOLOG CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIALS STATEMENTS

NOTE 1  NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Conolog
Corporation (the Company) is in the business of design, manufacturing and
distribution of small electronic and electromagnetic components and
subassemblies for use in telephone, radio and microwave transmissions and
reception, and other communication areas. The Companys products are used for
transceiving various quantities, data and protective relaying functions in
industrial, utility and other markets. The Companys customers include
primarily industrial customers, which include power companies located primarily
throughout the United States, and various branches of the military.

The
Company formed a wholly owned subsidiary, Nologoc Corporation. In September
1998, Nologoc Corporation purchased the assets of Atlas Design, Incorporated.
In January, 2001, Nologoc Corporation purchased the assets of Prime Time
Staffing, Incorporated and Professional Temp Solutions Incorporated. Atlas
Design, Prime Time Staffing and Professional Temp Solutions provided short-term
and long-term qualified engineering and technical staff, as well as human
resource consulting to various industries. In March 2004, the Company ceased
operating its staffing business. The assets of the Companys wholly-owned
subsidiary, Nologoc, Inc. trading as Atlas Design, were sold to the Companys
vice-president of operations of Atlas Design.

Going Concern

The
accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has
had recurring losses from operations of $2,011,656 and $2,502,084 for the fiscal
years ended July 31, 2012and July 31, 2011, respectively, and used cash from
operations in the amounts of $747,105for the fiscal year ended July 31, 2012and
$1,055,549 for the year ended July 31, 2011, respectively. At July 31, 2012,
the Company had negative working capital of $1,558,135and a stockholders
deficiency of $1,487,337. These factors raise substantial doubt as to the
Companys ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might
result from this uncertainty.

The Company plans to raise
additional capital through debt and equity placements and increase revenue
through new product development. In the event that the Company cannot generate
sufficient cash flow from its operations or raise proceeds from offering debt
or equity securities, the Company may be forced to curtail or cease its
activities. There can be no assurance that the Company will be successful in
achieving its goals.

Principles of Consolidation

The
consolidated financial statements include the accounts of Conolog
Corporation and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Equivalents

For
the purpose of the statements of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly liquid debt instruments with
original maturities of three months or less. The Company maintains cash and
cash equivalents balances at financial institutions and are insured by the
Federal Deposit Insurance Corporation up to $250,000. At times, balances in
certain bank accounts may exceed the FDIC insured limits. Cash equivalents
consist of highly liquid investments with an original maturity of three months
or less when purchased. At July 31, 2012 and 2011, the Company did not have any cash
equivalents.

Receivables and Allowance for Doubtful Accounts

Trade Receivables are
non-interest bearing, uncollateralized customer obligations and are stated at
the amounts billed to customers. The preparation of financial statements
requires our management to make estimates and assumptions relating to the
collectivity of our accounts receivable. Management specifically analyzes historical
bad

F-6

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

debts,
customer credit worthiness, current economic trends and changes in our customer
payment terms when evaluating the adequacy of the allowance for doubtful
accounts. The allowance for doubtful accounts at July 31, 2012 and July 31,
2011, were $- 0 - and $1,000, respectively.

The
Company has a concentration risk in trade accounts receivable with significant
sales to the government and local agencies. Two customers accounted for
approximately 73%and 23% of accounts receivable as of July 31, 2012. Two
customers accounted for approximately 93% and 4% of accounts receivable as of
July 31, 2011. The credit evaluation process has mitigated the credit risk,
such losses have been minimal, and within management expectations.

Inventories

Inventories
are valued at lower of cost or market using the first-in, first-out (FIFO)
method. Finished goods costs included raw materials, labor and manufacturing
overhead costs. Excess and obsolete inventory costs are expensed and a reserve
for slow-moving inventory is made on managements estimates.

Finished
goods are products that have been completed
and are awaiting shipment. Work-in-Process represents raw material components
that have been requisitioned from the warehouse and are being assembled in the
manufacturing area. Raw Materials consist of components parts purchased from
various suppliers and are used to build our finished products. Various raw
material parts are also maintained to support warranty claims for commercial
and military products. Typical raw material products include PC boards, digital
screen assemblies, guide rails, capacitors, terminals, power supplies, process
chips, resistors, keypads, relays and face plates.

The
Company provides a twelve-year warranty on all commercial products and is
required by government regulation to design and produce military products with
a minimum 25-year operating life in addition to shelf life.

The
Company maintains a significant amount of raw material component parts and some
of this raw material inventory is not expected to be realized within a twelve
month operating cycle from the balance sheet date. For any raw material part
which has not been purchased within the last twelve months from the balance
sheet date, it is evaluated as part of the slow moving inventory and is part of
our inventory reserve review. The Company estimated a usage rate for its raw
material component parts for what it expects to use over a 36 month period. Any
excess inventory based on this projected usage rate is written off as excess
and obsolete. The Company then reserves 100% of the estimated usage that is
over 12 months and less than 36 months. Certain raw material parts which have
been written down to a zero value, may still be maintained in inventory to
satisfy possible requirements under the warranty programs but are valued at
zero. The Company evaluates the inventory parts based on their age and usage
over a 36 month period to determine inventory obsolescence and reserve
adjustments.

Inventory consisted of the
following as of July 31, 2012 and July 31, 2011:

|                        |  |               |         |               |   |         | 
|----------------------- |  | ------------- | ------- | ------------- | - | ------- | 
|                        |  | July 31, 2012 |         | July 31, 2011 |  
|                        |  |               |         |               |   |         | 
|                       
|Finished Goods          |  | $             | 75,155  |               | $ | 162,507 | 
|Work-in-process         |  |               | 246,211 |               |   | 87,664  | 
|Raw materials           |  |               | 210,869 |               |   | 188,318 | 
|                        |  |               |         |               |   |         | 
|                        |  |               | 532,235 |               |   | 438,489 | 
|Less:
Inventory reserve |  |               | 35,000  |               |   | 49,000  | 
|                        |  |               |         |               |   |         | 
|Inventory, net          |  | $             | 497,235 |               | $ | 389,489 | 
|                        |  |               |         |               |   |         | 

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

F-7

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

As
of July 31, 2012 and July 31, 2011, inventory reserves amounted to $35,000 and
$49,000, respectively. For the years ended July 31, 2012 and July 31, 2011,
inventory written off as obsolete amounted to $47,143 and $50,000, respectively
and charged to cost of sales.

Property and Equipment

Property and equipment are carried at cost,
less allowances for depreciation. Depreciation is computed by the straight-line
method over the estimated useful lives of the assets which range between three
(3) and thirty-nine(39) years. Depreciation was $16,560 and$14,598 for the
fiscal years ended July 31, 2012 and 2011, respectively. Repairs and
maintenance expenditures which do not extend the useful lives of the related
assets are expensed as incurred. Gains and losses on depreciable assets retired
or sold are recognized in the consolidated statement of operations in the year
of disposal.

Fair Value Measurements

The
authoritative guidance for fair value measurements defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or the most advantageous market for
the asset or liability in an orderly transaction between market participants on
the measurement date. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable,
(iii) able to transact, and (iv) willing to transact. The guidance
describes a fair value hierarchy based on the levels of inputs, of which the
first two are considered observable and the last unobservable, that may be used
to measure fair value which are the following:

Level 1   Quoted prices in
active markets for identical assets or liabilities.

Level
2   Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or
corroborated by observable market data or substantially the full term of the
assets or liabilities.

Level
3   Unobservable inputs that are supported by little or no market activity and
that are significant to the value of the assets or liabilities.

The
Companys financial instruments include cash and cash equivalents, accounts
receivable, other current assets, accounts payable, accrued expenses, and notes
payable - officer. All of these items were determined to be Level 1 fair value
measurements.

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

Deferred Financing Costs

The
Company follows authoritative guidance for accounting for financing costs as it
relates to convertible debt issuance cost. These costs are deferred and
amortized over the term of the debt period or until redemption of the
convertible debentures. As of July 31, 2012 and July 31, 2011, $0 of deferred
financing costs remained to be amortized. Amortization of deferred financing
costs amounted to $0 and $382,132 for the fiscal years ended July 31, 2012 and 2011,
respectively.

Debt Discount

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

F-8

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

using
the effective interest method. Amortization of debt discounts amounted to $0 and
$720,687 for the fiscal years ended July 31, 2012 and 2011, respectively.

Impairment of Long-Lived Assets

We
review our long-lived assets for impairment whenever events and circumstances
indicate that the carrying value of an asset might not be recoverable. An
impairment loss, measured as the amount by which the carrying value exceeds the
fair value, is recognized if the carrying amount exceeds estimated undiscounted
future cash flows.

The
Company believes its current assumptions and estimates are reasonable and
appropriate; however, unanticipated events and changes in market conditions
could affect such estimates, resulting in the need for an impairment charge in
future periods For the years ended July 31, 2012 and 2011 no such events or
circumstances occurred causing an impairment charge.

Revenue Recognition

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

Research and Development

Research and Development costs are expensed as
incurred. Research and Development costs were $80,433 and $68,022 for the fiscal
years ended July 31, 2012 and 2011, respectively.

Shipping and Handling Costs

Shipping and handling costs are expensed as
incurred and amounted to $10,037 and $16,545 for the fiscal years ended July
31, 2012 and 2011, respectively.

Income Taxes

The Company follows the authoritative guidance
for accounting for income taxes. Deferred income taxes are determined using the
asset and liability method. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. A valuation allowance is recorded when the expected recognition of a
deferred tax asset is considered to be unlikely. The guidance also requires
that the Company determine whether it is more likely than not that a tax
position will not be sustained upon examination by the appropriate taxing
authority. If a tax position does not meet the more likely than not recognition
criterion, the guidance requires that the tax position be measured at the
largest amount of benefit greater than 50 percent not likely of being sustained
upon ultimate settlement. Based on the Companys evaluation, management has
concluded that there are significant uncertain tax positions requiring
recognition in the consolidated financial statements with respect to the sale of
the Companys New Jersey Net Operating Loss Carryovers. In the event the
Company receives an assessment for interest and/or penalties by major tax
jurisdiction it would be classified in the financial statements as general and
administrative expense.

Other State Tax Benefits

In 1998, the State of New Jersey enacted
legislation allowing emerging technology and/or biotechnology companies to sell
their unused New Jersey Net Operating Loss (NOL) Carryover and Research and
Development Tax Credits (R&D Credits) to corporate taxpayers in New
Jersey. During fiscal year ended 2012, the Company entered into agreements to
sell its unused NOLs. Recognition of this asset and income have been in
accordance with the

F-9

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

guidance of SAB Topic 13 and are recorded upon
the State of New Jerseys approval of the technology tax benefit transfer
certificate and receipt of a contract to purchase a fixed amount of these NOLs.

Warranty

The
Company provides a 12 year warranty on its commercial products and 25 years on
its military products; the warranty covers parts and labor. The Company, at its
option, repairs or replaces products that are found defective during the
warranty period provided that proper preventive maintenance procedures have
been followed by customers. Repairs necessitated by misuse of such products are
not covered by our warranty. In cases of defective products, the customer
typically returns them to the Companys facility in Somerville, New Jersey. The
Companys service personnel will replace or repair the defective items and ship
them back to the customer. All servicing is completed at the Companys main
facility and customers are charged a fee for those service items that are not
covered by the warranty. We do not offer our customers any formal written
service contracts. Our warranty costs have historically been insignificant and
therefore a provision was not warranted. Management continues to monitor the
costs and will provide a warranty provision if circumstances change.

Stock Based Compensation

The
Company follows the authoritative guidance for accounting for stock-based
compensation. This guidance requires that new, modified and unvested
share-based payment transactions with employees, such as grants of stock
options and stock, be recognized in the financial statements based upon their
fair value at the grant date and recognized as compensation expense over their
vesting periods. The Company also follows the guidance for equity instruments
issued to consultants.
During the fiscal year ended July 31, 2012, the company issued 1,100,000
shares of Common Stock (par value $0.01)  at $.09 per share valued at $99,000.
    In addition, an officer of the Company granted 45,000 shares at $.07 per
    share to an employee. This grant was valued at $3,600 and was treated as
    contributed capital.

Loss Per Share of Common Stock

Basic
loss per share of common stock is computed by dividing the Companys net
loss by the weighted average number of shares of Common Stock outstanding during
the period. The preferred dividends are not reflected in arriving at the net
loss as they are not material and would have no effect on loss per share available
to common shareholders. Diluted loss per shares is based on the treasury stock
method and includes the effect from potential issuance of common stock such as
shares issuable pursuant to the exercise of warrants and conversions of
debentures. Potentially dilutive securities at July 31, 2012, consist of
2,502,087 common shares from outstanding warrants and 155,006 common shares from
preferred stock. Potentially dilutive securities at July 31, 2011, consisted
of 982,837 common shares from outstanding warrants and 155,006 common shares
from preferred stock. Diluted and basic weighted average shares are the same,
as potentially dilutive shares are anti-dilutive.

Use of Estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates and assumptions made by
management are based upon available current information, historical experience
and other factors that are believed to be reasonable under the circumstances.
The estimates and assumptions made by management involve risks and
uncertainties which could cause reported amounts to differ materially from
actual future results. If managements estimates and assumptions are
inaccurate, the Companys reported amounts and disclosures of contingent assets
and liabilities could be materially and adversely affected. Management
considers its reserve for inventory and accounting for derivative liabilities
to be significant estimates.

Advertising / Public Relations Costs

Advertising/Public
Relations costs are charged to operations when incurred. These expenses were
$3,750 and $15,000 for the fiscal years ended July 31, 2012 and 2011,
respectively.

F-10

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

Future Impact of Recently Issued Accounting Standards

In
July 2012, the Financial Accounting Standards Board (FASB) issued ASU No.
2012-02, Testing Indefinite-Lived
Intangible Assets for Impairment(ASU 2012-02). ASU 2012-02 gives
entities an option to first assess qualitative factors to determine whether the
existence of events and circumstances indicate that it is more likely than not
that the indefinite-lived intangible asset impaired. If based on its
qualitative assessment an entity concludes that it is more likely than not that
the fair value of an indefinite lived intangible asset is less than its
carrying amount, quantitative impairment testing is required. However, if an
entity concludes otherwise, quantitative impairment testing is not required.
ASU is effective for annual and interim impairment tests performed for fiscal
years beginning after September 15, 2012, with early adoption permitted. ASU
2012-02 is not expected to have a material impact on the Companys financial
position or results of operations.

In
December 2011, the Financial Accounting Standards Board (FASB) issued ASU No.
2011-11, Balance Sheet (Topic 210):
Disclosures about Offsetting Assets and Liabilities (ASU 2011-11).ASU 2011-11 enhances current disclosures
about financial instruments and derivative instruments that are either offset
on the statement of financial position or subject to an enforceable master
netting arrangement or similar agreement, irrespective of whether they are
offset on the statement of financial position. Entities are required to provide
both net and gross information for these assets and liabilities in order to
facilitate comparability between financial statements prepared on the basis of
U.S. GAAP and financial statements prepared on the basis of IFRS. ASU 2011-11
is effective for annual reporting periods beginning on or after January 1,
2013, and interim periods within those annual periods. ASU 2011-11 is not
expected to have a material impact on the Companys financial position or
results of operations.

In
September 2011, the FASB issued Accounting Standards Update No. 2011-08 (ASU
2011-08), which updates the guidance in ASC Topic 350, Intangibles  Goodwill & Other. The
amendments in ASU 2011-08 permit an entity to first assess qualitative factors
to determine whether it is more likely than not that the fair value of a
reporting unit is less than the carrying amount as a basis for determining
whether it is necessary to perform the two-step goodwill impairment test
described in ASC Topic 350. The more-likely-than-not threshold is defined as
having a likelihood of more than fifty percent. If, after assessing the
totality of events or circumstances, an entity determines that it is more
likely than not that the fair value of a reporting unit is less than its
carrying amount, then performing the two-step impairment test is unnecessary.
The amendments in ASU 2011-08 include examples of events and circumstances that
an entity should consider in evaluating whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount. However,
the examples are not intended to be all-inclusive and an entity may identify
other relevant events and circumstances to consider in making the
determination. The examples in this ASU 2011-08 supersede the previous examples
under ASC Topic 350 of events and circumstances an entity should consider in
determining whether it should test for impairment between annual tests, and
also supersede the examples of events and circumstances that an entity having a
reporting unit with a zero or negative carrying amount should consider in
determining whether to perform the second step of the impairment test. Under
the amendments in ASU 2011-08, an entity is no longer permitted to carry
forward its detailed calculation of a reporting units fair value from a prior
year as previously permitted under ASC Topic 350. ASU 2011-08 is effective for
annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. The adoption of ASU 2011-08 did not have a
material impact on the Companys financial position or results of operations.

In
May 2011, the FASB issued Accounting Standards Update 2011-04 (ASU 2011-04),
which updated the guidance in ASC Topic 820, Fair
Value Measurement.The amendments in ASU 2011-04 generally represent
clarifications of Topic 820, but also include some instances where a particular
principle or requirement for measuring fair value or disclosing information
about fair value measurements has changed. ASU 2011-04 results in common
principles and requirements for measuring fair value and for disclosing
information about fair value measurements in accordance with U.S. GAAP and
International Financial Reporting Standards. The amendments in ASU 2011-04 are
to be applied prospectively. For public entities, the amendments are effective
for interim and annual periods beginning after December 15, 2011. The adoption
of ASU 2011-04 did not have a material impact on the Companys financial
position or results of operations.

Management does not believe
there would have been a material effect on the accompanying financial
statements had any other recently issued, but not yet effective, accounting
standards been adopted in the current period

F-11

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

NOTE 3  INCOME TAXES

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

|                  |  |      |          |      |   |       | 
|----------------- |  | ---- | -------- | ---- | - | ----- | 
|                  |  | 2012 |          | 2011 |  
|                  |  |      |          |      |  
|Current:          |  |      |          |      |   |       | 
|Federal           |  | $    |         |      | $ |      | 
|State             |  |      | (226,361 | )    |   | 3,792 | 
|Deferred:         |  |      |          |      |   |       | 
|Federal           |  |      |         |      |   |      | 
|State             |  |      |         |      |   |      | 
|                  |  |      |          |      |   |       | 
|                  |  |      |          |      |   |       | 
|Total tax benefit |  | $    | (226,361 | )    | $ | 3,792 | 
|                  |  |      |          |      |   |       | 

The U.S. federal statutory
income tax rate is reconciled to the effective rate at July 31, 2012 and 2011,
as follows:

|                                                          |  |      |       |      |  |       |   
|--------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- | --
|                                                          |  | 2012 |       | 2011 | 
|                                                          |  |      |       |      | 
|                                                          |  |      |       |      |  |       |   
|Income tax expense at U.S. federal statutory rate         |  |      | (34.0 | %)   |  | (34.0 | %)
|New Jersey state statutory rate                           |  |      | (5.8  | %)   |  | (5.8  | %)
|Change in valuation allowance                             |  |      | 23.6  | %    |  | 22.6  | % 
|Loss on derivative financial instruments                  |  |      | 0.0   | %    |  | 0.0   | % 
|Common stock issue for services                           |  |      | 2.3   | %    |  | 0.7   | % 
|Amortization of debt discount and deferred financing fees |  |      | 0.0   | %    |  | 10.2  | % 
|Benefits and modification of debt                         |  |      | 0.0   | %    |  | 0.0   | % 
|Induced conversion cost                                   |  |      | 0.0   | %    |  | 6.2   | % 
|                                                          |  |      |       |      |  |       |   
|                                                          |  |      |       |      |  |       |   
|Effective tax benefit                                     |  |      | (13.9 | )%   |  | 0.1   | % 
|                                                          |  |      |       |      |  |       |   

In 1998, the State of New Jersey enacted legislation allowing emerging
technology and/or biotechnology companies to sell their unused New Jersey Net
Operating Loss (NOL) Carryover and Research and Development Tax Credits
(R&D Credits) to corporate taxpayers in New Jersey. During the fiscal
year ended July 31, 2012, the Company entered into agreements to sell up to
$5,707,131 of its unused tax losses. The Company received net proceeds of
$227,945, during the fiscal year ended July 31, 2012, related to the sale and
accordingly recorded them as a tax benefit in the period received. During the
fiscal year ended July 31, 2011, the Company did not enter into such agreements
and did not receive such tax benefits.

Deferred taxes are recognized for temporary differences between the
bases of assets and liabilities for financial statement and income tax
purposes, and net operating losses. The temporary differences causing deferred
tax benefits are primarily due to net operating loss carry forwards.

At
July 31, 2012 and 2011, the Company has net operating loss carry forward for
federal income tax purpose of approximately $30,341,000 and $29,218,000
respectively, which is available to offset future Federal taxable income
through 2030. At July 31, 2012 and 2011, the Company has net operating loss
carryforward toward state income tax purposes of approximately $4,242,000 and
$9,223,000 respectively, to offset future state taxable income through 2030.

The
tax provision for the fiscal year ended July 31, 2012, was a tax benefit of
$226,361 which consists of a tax benefit for the sale of NJ NOLs of $227,945,
New Jersey State tax refunds of $4,800 and New Jersey state tax expense of
$6,384 and for the fiscal year ended July 31, 2011, was a tax expense of
$3,792. The Company has no open tax years for the State of New Jersey or
federal income tax purposes, which are subject to examination.

The components of the net
deferred tax assets (liabilities) at July 31, 2012 and 2011 are as follows:

F-12

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

|                          |  |      |             |      |   |             |  
|------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                          |  | 2012 |             | 2011 |  
|                          |  |      |             |      |  
|                          |  |      |             |      |   |             |  
|Deferred tax asset        |  |      |             |      |   |             |  
|Net operating loss        |  | $    | 10,633,000  |      | $ | 10,689,000  |  
|Reserves                  |  |      | 14,000      |      |   | 20,000      |  
|                          |  |      |             |      |   |             |  
|                          |  |      |             |      |   |             |  
|Total deferred tax assets |  |      | 10,677,000  |      |   | 10,709,000  |  
|                          |  |      |             |      |   |             |  
|Deferred tax liability    |  |      |            |      |   |            |  
|                          |  |      |             |      |   |             |  
|                          |  |      |             |      |   |             |  
|Net deferred tax asset    |  |      | 10,677,000  |      |   | 10,709,000  |  
|                          |  |      |             |      |   |             |  
|Less: Valuation allowance |  |      | (10,677,000 | )    |   | (10,709,000 | )
|                          |  |      |             |      |   |             |  
|Net deferred tax asset    |  | $    |            |      | $ |            |  
|                          |  |      |             |      |   |             |  

The
Company periodically assesses the likelihood that it will be able to recover
its deferred tax assets and determines if a valuation allowance is necessary.
As a result of this analysis the Company concluded that it is more likely than
not that its deferred tax assets will not be recovered and, accordingly,
recorded 100% of the deferred tax asset to a valuation allowance as of July 31,
2012 and July 31, 2011.

The
Company accounts for the recognition, measurement, presentation and disclosure
of uncertain tax positions in accordance with the provisions of ASC 740-10
(Accounting for Uncertainty in Income Taxes). The Company evaluates these
unrecognized tax benefits each reporting period. As of July 31, 2012, the total
amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate is $135,000. The unrecognized tax benefit is the result of
the Companys position to deduct the write off of the obsolete inventory for
income tax purposes. The Company maintains some of its obsolete inventory
utilization in repairing its products previously sold in accordance with the
Companys warranty program.

The
Company, over the years, has discarded obsolete inventory; however, the company
did not keep a detailed log of the inventory that was discarded. These
inventory items were written down to zero in the Companys inventory system as
they were deemed to have no value and therefore the Company deducted the
amounts on its income tax returns.

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

|                                                          |  |                         |         | 
|--------------------------------------------------------- |  | ----------------------- | ------- | 
|                                                          |  | July
 31, 2012 and 2011 |        
|                                                          |  |                         |        
|Balance
 at beginning of period                           |  | $                       | 135,000 | 
|                                                          |  |                         |         | 
|Additions
 based on tax positions related to current year |  |                         |        | 
|                                                          |  |                         |         | 
|Balance
 at end of period                                 |  | $                       | 135,000 | 
|                                                          |  |                         |         | 

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

It is reasonably possible that the amount of unrecognized tax benefits
will increase or decrease in the next twelve months. These changes may be the result
of new state audits. The balance of the unrecognized tax benefits is primarily
related to uncertain tax positions for which there are no current ongoing
federal or state audits and therefore, an estimate of the range of the
reasonably possible outcomes cannot be made.

F-13

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

The
Company has recorded accrued interest of $31,000 and $16,000 as of July 31, 2012
and July 31, 2011 respectively, which has been included in accrued expenses in
the Balance Sheet. During the fiscal years ended July 31, 2012 and July 31,
2011 the Company included $15,000 and $11,000 of interest expense in the
statement of operations.

NOTE 4  STOCKHOLDERS DEFICIENCY

On
January 6, 2011, Conolog Corporation (the Company) entered into a Securities
Purchase Agreement (the Securities Purchase Agreement) with Robert Benou, the
Companys Chief Executive Officer and Chairman of the Companys Board of
Directors, pursuant to which the Company sold to Robert Benou a total of 277,777
shares of its Common Stock at a price per share of $0.36 for an aggregate
purchase price of $100,000.

At
various times during the year ended July 31, 2011, $1,000,000 of convertible
debt was converted into 3,333,333 shares of common stock.

At
various times during the year ended July 31, 2011, $88,177 of interest expense
was converted into 229,666 shares of common stock.

At
various times during the year ended July 31, 2011, an aggregate 1,955,782 Class
C Warrants were exercised in cashless exercises into 1,646,723 shares of common
stock.

On
January 31, 2011, the Company received notice from the Listing Qualifications
Staff of the NASDAQ Stock Market (NASDAQ) indicating that the Company had
failed to regain compliance with NASDAQ Listing Rule 5550(b), which requires
the Company to have a minimum of $2,500,000 in stockholders equity (the
Rule), and that, accordingly, its common stock will be delisted from The
NASDAQ Capital Market and that trading of its common stock was suspended,
effective with the open of business on February 2, 2011. The Company securities
have traded on the OTCQB under the symbol CNLG since the suspension of
trading on NASDAQ. The Company intends to continue to file periodic reports
with the SEC pursuant to the requirements of the Securities Exchange Act of 1934, as amended.

During
December of 2011, the company granted to employees, officers, and directors
1,100,000 shares of Common Stock priced at $.09 per share and 45,000 shares
priced at $.07 per share for an aggregate expense of $102,600.

Between
October 4, 2011 and May 24, 2012, the Company issued and sold an aggregate of
6,754,072 of its common stock for $675,407, in a first private placement
offering. This offering contains an Anti-Dilution provision that calls for
the issuance of additional shares to the investors, if the company issues or
sells additional common shares on or before December 31, 2012. The number of
shares to be issued will be such that each investors percentage of ownership
remains the same as it was before the additional common shares were issued or
sold.

On
May 3, 2012, the Board of Directors authorized the issuance of 214,286 shares, valued at $15,000, of
the Companys common stock (par value $.01) to a vendor for payment of a
previously recorded expense.

Between
May 14, 2012 and July 31, 2012, the Company issued and sold units containing an
aggregate of 802,000 shares of its common stock and 1,604,000, 2 year warrants
with an exercise price of $.01 for $200,500, in a second private placement
offering. These warrants are not exercisable until January 1, 2013 and will
expire on December 31, 2014. In addition, subject to the terms of the first
private placement the Company is obligated to issue to the investors in the
first private placement 266,712 anti-dilution shares at $.01 par value. These
shares have been recorded and are included in the financial statements as of
July 31, 2012.

The
Series A Preferred Stock provides 4% cumulative dividends, which were $133,183
($0.86 per share) and $130,083 ($0.84 per shares) in arrears at July 31, 2012
and July 31, 2011, respectively. In addition, each share of Series A Preferred
Stock may be exchanged for one share of Common Stock upon surrender of the
Preferred Stock

F-14

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

and
payment of $5,760,000 (due to reverse stock splits) per share. The Company may
redeem the Series A Preferred Stock at $.50 per share plus accrued and unpaid
dividends. The liquidation preference of the Series A Preferred Stock was $210,683
and $207,583 at July 31, 2012 and July 31, 2011, respectively.

The
Series B Preferred Stock provides cumulative dividends of $0.90 per share,
which were $44,250 ($36.97 per share) and $43,173 ($36.07 per share) in arrears
at July 31, 2012 and July 31, 2011, respectively. In addition, each share of
Series B Preferred Stock is convertible into .005 of one share of Common Stock.
The liquidation preference of the Series B Preferred Stock is the dividend in
arrears plus $15 per share. The liquidation preference was $62,205 and $61,128
at July 31, 2012 and July 31, 2011, respectively.

The
following table summarizes the warrants activities:

|                              |  |                    |            |                                    |   |                                                           |  |                              |      |  |   |         | 
|----------------------------- |  | ------------------ | ---------- | ---------------------------------- | - | --------------------------------------------------------- |  | ---------------------------- | ---- |  | - | ------- | 
|                              |  | Number
 of
 shares |            | Weighted
 Average
 Exercise
 price |   | Weighted
 Average
 Remaining
 contractual
 term in
 years |  | Aggregated
 Intrinsic
 Value |     
|                              |  |                    |            |                                    |   |                                                           |  |                              |     
|Outstanding at July 31,
 2010 |  |                    | 2,939,036  |                                    | $ | 1.47                                                      |  |                              | 4.47 |  | $ | 961.539 | 
|                              |  |                    |            |                                    |   |                                                           |  |                              |      |  |   |         | 
|Granted                       |  |                    |           |                                    |   |                                                          |  |                              |     |  |   |        | 
|Exercised                     |  |                    | (1,955,782 | )                                  | $ | .60                                                       |  |                              |     |  |   |        | 
|Cancelled / Expired           |  |                    | (417       | )                                  | $ | 25.00                                                     |  |                              |     |  |   |        | 
|                              |  |                    |            |                                    |   |                                                           |  |                              |      |  |   |         | 
|Outstanding at July 31,
 2011 |  |                    | 982,837    |                                    | $ | 3.40                                                      |  |                              | 3.24 |  | $ |        | 
|                              |  |                    |            |                                    |   |                                                           |  |                              |      |  |   |         | 
|                              |  |                    |            |                                    |   |                                                           |  |                              |      |  |   |         | 
|Granted                       |  |                    | 1,604,000  |                                    | $ | 0.01                                                      |  |                              | 2.42 |  | $ | 112,280 | 
|Exercised                     |  |                    |           |                                    |   |                                                          |  |                              |     |  |   |        | 
|Cancelled / Expired           |  |                    | (84,750    | )                                  | $ | 21.00                                                     |  |                              |     |  |   |        | 
|                              |  |                    |            |                                    |   |                                                           |  |                              |      |  |   |         | 
|Outstanding at July 31,
 2012 |  |                    | 2,502,087  |                                    | $ | .63                                                       |  |                              | 2.44 |  | $ | 112,280 | 
|                              |  |                    |            |                                    |   |                                                           |  |                              |      |  |   |         | 

On June 18, 2010, the Company entered into an amendment with the holders of its outstanding convertible debentures and
warrants. Pursuant to the amendments, the parties agreed to the following: (i) remove the above provision which allowed for
an adjustment to the conversion price of the debentures or exercise price of the debentures, (ii) the conversion feature of the
February 2010 debentures were adjusted to a fixed conversion price $0.60, (iii) the exercise price of the outstanding Class C warrants shall be adjusted from $1.12 to $0.50 per share, (iv)
the exercise price of the outstanding selling agent warrants shall be adjusted from $1.12 to $0.60 per share.

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

NOTE 5  STOCK-BASED COMPENSATION

2002 Stock Option Plan

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

The Plan terminated in April 2012.

As
of July 31, 2012 and July 31, 2011, there had been no shares granted under the
2002 Plan.

F-15

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

Stock Incentive Plans

The
Company has Stock Incentive Plans pursuant to which the Company may grant a
number of shares of the Companys Common Stock to the Companys officers,
directors, employees and consultants. The Companys 2008 and 2009 Stock
Incentive Plan was approved by its shareholders, authorizing the Board to, from
time-to-time, issue up to 800,000 shares of the Companys Common Stock to the
Companys officers, directors, employees and consultants under each plan.

The
specific number of shares of the Companys Common Stock granted to any officer,
director, employee or consultant will be determined by the Board.

Pursuant
to the Corporations 2009 Stock Incentive Plan, no common shares of Company
stock were issued to current officers, directors, employees and consultants for
the fiscal years ended July 31, 2012 and July 31, 2011.

Securities Issued for Services

During
December of 2011, the company granted to employees, officers, and directors
1,100,000 shares of Common Stock priced at $.09 per share and 45,000 shares
priced at $.07 per share for an aggregate expense of $102,600.

NOTE 6 - MAJOR CUSTOMERS

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

|                  |  |                |           |                           |   |                      |  |                      |   |  |  |      |  
|----------------- |  | -------------- | --------- | ------------------------- | - | -------------------- |  | -------------------- | - |  |  | ---- | -
|Fiscal Year Ended |  | Total
 Revenue |           | Sales to Major
 Customers |   | Number of
 Customers |  | Percentage of
 Total |  
|                  |  |                |           |                           |   |                      |  |                      |  
|July
 31, 2012    |  | $              | 831,718   |                           | $ | 543,322              |  |                      | 2 |  |  | 65.3 | %
|July
 31, 2011    |  | $              | 1,691,852 |                           | $ | 1,373,787            |  |                      | 3 |  |  | 81.2 | %

NOTE 7  COMMITMENTS

EMPLOYMENT CONTRACTS

The
Companys Chief Executive Officer is serving under an employment agreement
commencing June 1, 1997 and ending May 31, 2002, which pursuant to its terms,
renews for one-year terms until cancelled by either the Company or the Chief
Executive Officer. His annual base salary as of July 31, 2012, was $450,000 and
increases by $20,000 annually on January 1st of each year. In
addition, the Chief Executive Officer is entitled to an annual bonus equal to
6% of the Companys annual income before income tax provision as
stated in its annual Form 10-K. The employment agreement also entitles Chief
Executive Officer to the use of an automobile and to employee benefit plans,
such as; life, health, pension, profit sharing and other plans. Under the employment
agreement, employment terminates upon death or disability of the employee and
the employee may be terminated by the Company for cause. During the fiscal
years ended July 31, 2012, and 2011, the Companys CEO did not receive any
payment of his salary and forgave $0 and $107,500 of his salary, respectively.
The Company has accrued and expensed $450,000 for the unpaid portion of his
salary for the fiscal year ended July 31, 2012 and accrued and expensed
$334,167 for the unpaid portion of his salary for the fiscal year ended July
31, 2011.

The
Companys President and Chief Operating Officer is serving under an employment
agreement commencing May 3, 2012 and ending May 3, 2016, which pursuant to its
terms, renews for one-year terms until cancelled by either the Company or
employee. His annual base salary as of July 31, 2012 was $199,000 and he
receives annual increases of $3,000 on May 3rd of each year. The Companys
President and Chief Operating Officer is entitled to an annual bonus equal to
6% of the Companys annual income before income tax provision as stated in
its annual

F-16

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

Form
10-K. The employment agreement also entitles him to the use of an automobile
and to employee benefit plans, such as life, health, pension, profit sharing
and other plans. Under the employment agreement, employment is terminated upon
death or disability of the employee and employee may be terminated by the
Company for cause. During the fiscal years ended July 31, 2012 and 2011, the
Companys President and Chief Operating Officer was paid $84,467 and $61,873 of
his salary, respectively. During the fiscal year ended July 31, 2011, the Companys
president forgave $24,167 of his salary. The Company has accrued and expensed
$158,658 for the unpaid portion of his salary for the fiscal year ended July 31,
2012 and accrued and expensed $169,150 for the unpaid portion of his salary for
the fiscal year ended July 31, 2011..

INSTALLMENT AGREEMENT:

The Company has an
outstanding balance with its former auditors Withum, Smith & Brown and has
agreed to pay the balance of $122,500 as follows:

| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Monthly installment
 payments of $1,000 commencing March 25, 2011.                                                                                                            
| |  | 8% of all additional net
 financing received by the Company over the next 22 months beginning February
 25, 2011 and ending December 31. 2012.                                
| |  | If there is still a
 remaining balance after December 31, 2012, the balance will be paid in
 Conolog common stock at the fair market value of the stock on December 31,
 2012.

As of July 31, 2012, the
remaining balance on this indebtedness was $90,704, which is included as part
of accrued expenses on the Balance Sheet.

NOTE 8  LOANS FROM OFFICERS

On
July 28, 2011, Conolog Corporation issued two promissory notes in favor of
Robert Benou in the aggregate principal amount of $256,350, consisting of
amounts advanced by Mr. Benou to the Company between January 24, 2011 and July
18, 2011.

During the year ended July 31, 2012, the Company
    made repayments to Robert Benou totaling $181,350 for loans made by him during
    the year ended July 31, 2011.

On
March 23, 2012, Conolog Corporation issued a promissory note in favor of Robert
Benou in the aggregate principal amount of $100,000, consisting of amounts
advanced by Mr. Benou to the Company on that date.

On
July 16, 2012, Conolog Corporation issued a promissory note in favor of Robert
Benou in the aggregate principal amount of $15,000, consisting of amounts
advanced by Mr. Benou to the Company on that date.

Mr.
Benou is the Chief Executive Officer and Chairman of the Company. The Notes are
payable on demand and do not bear interest. The Notes are subject to various
default provisions, and the occurrence of such an Event of Default will cause
the outstanding principal amount under the Note, together with any and all
other amounts payable under the Note, to become immediately due and payable to
Mr. Benou. The outstanding balance as of July 31, 2012, was $190,000.

NOTE 9  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

|                                               |  |                                    |       |                                    |   |    | 
|---------------------------------------------- |  | ---------------------------------- | ----- | ---------------------------------- | - | -- | 
|                                               |  | Fiscal
 Year
 Ended
 July 31, 2012 |       | Fiscal
 Year
 Ended
 July 31, 2011 |  
|                                               |  |                                    |       |                                    |  
|CASH PAID DURING THE PERIOD FOR:               |  |                                    |       |                                    |   |    | 
|Interest expense                               |  | $                                  | 2,207 |                                    | $ | 25 | 
|                                               |  |                                    |       |                                    |   |    | 
|Income Taxes                                   |  | $                                  | 6,384 |                                    | $ |   | 
|                                               |  |                                    |       |                                    |   |    | 
|SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: |  |                                    |       |                                    |   |    | 
|None                                           |  | $                                  |      |                                    | $ |   | 
|                                               |  |                                    |       |                                    |   |    | 

F-17

---



CONOLOG CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS

NOTE 10 PROFIT SHARING PLAN

The
Company sponsors a contributing thrift and savings plan which qualifies under
Section 401(k) of the Internal Revenue Code that covers eligible employees
meeting age and service requirements. Eligible participating employees may
elect to contribute up to the maximum allowed under the IRS code to an
investment trust. Employer contributions to the plan are discretionary and
determined annually by management. The Company did not make any matching
contributions to the plan for either the fiscal year ended July 31, 2012 or the
fiscal year ended July 31, 2011.

NOTE 11  SUBSEQUENT EVENTS

The
Company has evaluated subsequent events through the date the financial
statements were issued and up to the time of filing of the financial statements
with the Securities and Exchange Commission.

Between
August 1 and November 29, 2012, the Company issued units consisting of 68,000
shares of its common stock and 136,000 warrants valued at $17,000 as part of
its secondary private placement offering. Pursuant to Anti-Dilution provisions,
    the Company is obligated to issue an additional 22,614 shares of its common
    stock to investors in the Companys
first private placement.

On
October 4, 2012, Conolog Corporation issued a promissory note in favor of
Robert Benou in the aggregate principal amount of $100,000, consisting of
amounts advanced by Mr. Benou to the Company on that date. The note is not interest bearing and is payable on demand.

On
November 13, 2012, the Company filed a form 8-K with the Securities and Exchange
Commission (SEC) stating that in light of the unprecedented interruptions
caused by Hurricane Sandy, the Company would be unable to file its Form 10-K by
the 12b-25 extension deadline of Monday, November 13, 2012. The next day, the
SEC issued press release 2012-226 which states, in part, Companies that
receive an extension on filing Exchange Act annual reports or quarterly reports
pursuant to the order will be considered to have a due date of Nov. 21, 2012
for those reports for purposes of Exchange Act Rule 12b-25.

On
November 13, 2012, Mr. Marc R. Benou (Mr. Benou) resigned from his position
as the Secretary of the Company. Mr. Benou shall remain with the Company in the
capacity of President, Chief Operating Officer and Director. Mr. Benous resignation
is not the result of any disagreement with the Company on any matter relating
to the Companys operations, policies or practices.

On
November 13, 2012, the Board approved, by unanimous written consent, the
appointment of Mr. Michael Horn as the Companys Vice President and Secretary.
Mr. Horn has been a director of the Company since August 2011.

On
November 21, 2012, Conolog Corporation issued a promissory note in favor of
Robert Benou in the aggregate principal amount of $98,000, consisting of amounts
advanced by Mr. Benou to the Company on that date. The note is not interest bearing and is payable on demand.

On December 11, 2012 the Company entered into agreements to sell up to
$2,208,444 of its unused tax losses and received net proceeds of $92,732
related to the sale.

Between August 1, 2012 and January 4, 2013, the
    Company paid an aggregate amount of $103,000 to Robert Benou as repayment
    towards his outstanding notes.

F-18

---