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

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

|X|   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934 For the fiscal year ended July 31, 2003 (No Fee Required)

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

                         Commission File Number: 0-8174

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

                     DELAWARE                         52-0853566
          (State or other jurisdiction of            (IRS Employer
          incorporation or organization)          Identification No.)

          5 Columbia Road, Somerville, NJ                08876
      (Address of principal executive office)         (Zip code)

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

      Title of each class Name of each exchange in which registered Common
Stock, $0.01 par value NASDAQ SmallCap Market Class A Warrants - Traded Until
Expiration of August 30, 2002

Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.

            Yes |X| No |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to the Form 10-KSB.

The aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the closing sale price of $.80 on October 15, 2003 was
$1,039,930.

The number of shares outstanding of the Registrant's common stock outstanding,
excluding treasury shares, as of October 15, 2003 was 1,299,913.

<PAGE>

DOCUMENTS INCORPORATED BY REFERENCE FORM 10-KSB
JULY 31, 2003

TABLE OF CONTENTS
PART I
Item 1. Business Development and Business .....................................1

Item 2. DESCRIPTION OF PROPERTY...............................................10

Item 3. LEGAL PROCEEDINGS.....................................................10

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................11

PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS...............................................................13

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
        AND FINANCIAL CONDITION...............................................16

Item 7. FINANCIAL STATEMENTS..................................................16

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE..............................................16

Item 8A. CONTROLS AND PROCEDURES..............................................16

PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS.........................................17

Item 10. EXECUTIVE COMPENSATION, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT............................18

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................................................20

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................20

PART IV
Item 13. EXHIBITS AND REPORTS.................................................20

SIGNATURES....................................................................23

<PAGE>

                           FORWARD LOOKING STATEMENTS

      This annual report on Form 10KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Forward-looking statements inherently involve risks and uncertainties
that could cause actual results to differ materially from those stated. Such
statements are subject to certain risks and uncertainties, including possible
significant variations in recognized revenue due to customer caused delays in
installations and competition from larger more well known, that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. Furthermore, there can be no assurance that our sales
will increase. The Company does not assume any obligation to update the
forward-looking information and cautions readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made.

                                     PART I

GENERAL INFORMATION

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

Item 1. BUSINESS DEVELOPMENT AND BUSINESS

      We were organized in 1968 and were engaged primarily in the design and
manufacture of 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.

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

      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.

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

      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,

<PAGE>

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.

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

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

      In January 2001, 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.

      In October 2002, we ceased operating this business and entered into an
Agreement to rescind the Asset Purchase Agreement pursuant to which we acquired
ICM.

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 the
Company); (iv) audio receivers and demodulators which are small systems which
receive and decode the signals from the audio transmitters and convert them into
digital codes for input into computers, teletypes or other similar equipment
(not manufactured by the Company) or convert such signals into mechanical or
other form of energy, such as opening or closing valves, or starting or stopping
a motor; (v) magnetic "networks" which are devices that permit the matching or
coupling of different types of communication equipment together or many
identical or similar equipment together or onto telephone or other transmission
lines so as not to cause interference; and (vi) analog transmitters and
receivers, which permit the coding/transmission and receiving/decoding of a
constantly variable data, such as the water level in a tank, pressure in a pipe
or temperature, by actually displaying the exact information at the receiving
end in digital form for storing in a computer or other devices, or by physically
displaying the information in a visual fashion such as a numerical readout or
meter, and (vii) multiplexer supervisory controls, which enable callers with
high volumes of supervisory data to transmit on fewer phone lines.

      Such products are used in radio and other transmissions, telephones and
telephone exchanges, air and traffic control, automatic transmission of data for
utilities, 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

<PAGE>

pre-assembled in a large cabinet with other equipment in a configuration that
would provide the end user with protection as well as operational status
displays.

Present Status/Business Product Description

      We are engaged in four basic market segments:

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

            - Direct sales to end-users

            - Sales to system assemblers

            - Sales to contractors/installers

      (B)   Military Sales

            - Direct contract sales to the military

            - As subcontractor to systems producers

            - Foreign governments

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

      (D)   Staffing Services

            - Short and long term qualified engineering and technical services
            as well as human resource consulting (Under the trade names "Atlas
            Design", "Prime Time Staffing" and "Professional Temp Solutions")

(A) Military Sales

      Military sales are primarily for 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), weapon/missile
guidance and control (Patriot missile, Tomahawk, Pave-Paws), torpedo active
signal recognition and differentiation mounted in the nose cone of the torpedo
(MK-30, Captor, MK-50 torpedoes), ship to ship teletype signaling filters used
in deployment of ships (UCC-1 and UCC-4 systems) as well as many other signaling
applications where accurate electromagnetic frequency control is required.

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

B) Commercial "INIVEN" Sales and Products

      "INIVEN" equipment is designed around four (4) core product groups:

<PAGE>

      (1)   PTR and PDR Teleprotection Series (Protective Tone Relaying
            Communications Terminal, which includes the PTR-1000, PTR-1500 and
            PDR-2000.

      (2)   Audio Tone & Telemetry Equipment (Audio Tone Control, Telemetering
            and Data Transmission Systems), which includes Series "98", "68",
            "40" and "GEN-1".

      (3)   Multiplex Supervisory Control System

      (4)   Communication Link Multihead Fiber Optic Couplers and Industrial
            Grade 1200 Baud Modems.

(1) PTR Teleprotection Series

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

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

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

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

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

      The PTR-1000 target market is:

      New installations; i.e., new transmission lines, new distribution
      segments, for utilities and cogenerators.

      Existing installations not properly protected, improving efficiency and
      reducing down time.

      Existing installations for upgrading to PTR-1000 technology, again
      improving efficiency and down time.

<PAGE>

      Sales efforts for the PTR-1000 are presently being conducted by the
      Company's Marketing executives, through independent manufacturers'
      representatives and through distributors. Sales are targeted primarily to
      the largest utilities and co-generators.

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

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

(2) Audio Tone and Telemetry Equipment

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

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

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

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

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

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

GEN-1 and GEN-1 Programmable Series

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

<PAGE>

      Because of the ease of use and installation, there is much GEN-1 type
equipment installed and used in the United States by a wide spectrum of diverse
users. Since our line has a distinct mechanical configuration, we designed our
GEN-1 Programmable units and other improvements as replacements for existing
units. These account for approximately 18% of the Company's commercial sales.
The Company's line of GEN-1 equipment is extensive and provides the user with
the ability to perform multiple control functions, status monitoring as well as
continuous variable data monitoring, such as a level in a tank or pressure
gauge.

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

      Sales to this market are made in the same manner as the PTR-1000 market
except that manufacturers' representatives specialize in selling to this diverse
market.

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

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

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

(3) Multiplex Supervisory (IM) Control System

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

      Using the "98" DSP Series as its communications link, the Company designed
the Multiplexer Supervisory Control System to handle 8 times the normal capacity
per channel. The microprocessor-based system allows a single telephone line to
handle up to 900 data inputs.

      This product line, because of its data density capability, may be utilized
for a very broad range of applications. This product has only recently been
introduced and the Company sales efforts for it are being conducted through its
existing independent manufacturers sales representatives.

<PAGE>

(4) Fiber Optic Link and Data Modem

      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-coupler line to interface with the many different fiber heads. In
addition to complete data interface couplers we launched a series of 1200 Baud
Modems (Industrial Grade) for operation under the same environmental
specifications in line with our products.

(C) Commercial Subcontract Manufacturing to Systems Producers

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

                                  OUR STRATEGY

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

                               MARKETING AND SALES

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

      MILITARY - We market our military products directly and through
independent manufacturing sales representatives.

      COMMERCIAL - We market the PTR-1000, PTR-1500, PDR-2000 and all of our
INIVEN products by means of our Sales personnel, through independent
manufacturers representatives, and through distributors, focusing mainly on the
largest utilities and co-generators. In the United States alone there are over
500 large entities generating electricity which are identified as
investor-owned, municipal systems, cooperative systems and federal, state and
district systems.

      We market the Gen-1 and Gen-1 Programmable Series, as well as the "98"
Series, "68" Series and "40" Series, in the same way as the PTR-1000 except that
the manufacturers representatives used by the Company specialize in selling to
the diverse markets that utilize such products.

                                   COMPETITION

      The market for our products and staffing services is very competitive.
There are several companies engaged in providing the services and in the
manufacturing the products of the type

<PAGE>

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
technology superior products or offered these products and services at
significantly lower prices than our products.

                                LARGEST CUSTOMERS

      Sales to our major customers during fiscal 2003(Schering-Plough,
Bonneville Power, Acme Industrial) totaled $274,431, $197,210 and $194,027,
respectively (totaling 18.4%, 13.2% and 12.9% of all sales, respectively). Sales
to our major customers during fiscal 2002 (Schering-Plough, Bonneville Power,
Surtek Industries) totaled $356,861, $241,093 and $150,585, respectively
(totaling 15.9%, 10.7% and 6.7% of all sales, respectively). None of these
customers has or had any material relationship other than business with the
Company.

                                    INVENTORY

Raw Materials

      We believe that we have adequate sources of raw materials available for
use in our business. Our products are assembled from a variety of standard
electronic components, such as integrated circuits, transformers, transistors,
passive components (i.e., resistors, capacitors and inductors), diodes and
assorted hardware, such as, printed circuit boards, connectors and faceplates.
We are not dependent upon any single supplier. We also purchase a number of
other electronic components and sub-assemblies from various suppliers. There has
been no material increase in the cost of most raw materials and we do not
foresee a significant shortage of raw materials in the future.

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

                                  MANUFACTURING

      The Company currently rents approximately 7,000 square feet of the
facility located at 5 Columbia Road, for a combination of manufacturing and
office space. The Company assembles, under normal workload conditions, the
product it sells, however, to accommodate the peak demands that occur from time
to time we can engage a number of subcontractors to assemble boards to our
specifications. All assemblies, however, are inspected and fully tested by the
Company's 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

      We provide a twelve-year warranty on our products, which covers parts and
labor. The Company, at its option, repairs or replaces products that are found
defective during the warranty

<PAGE>

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

      During fiscal 2000-2001, we invested approximately $25,000 to complete the
accessory modules of the PTR-1500 and extend the range of our Multiplexer
products. During fiscal 1999-2000 we invested approximately $1,705,257 for
product development and amortization of product costs.

      During fiscal 2000-2001 we proceeded with the design of the PDR-2000 8
channel digital transfer trip communications product. During fiscal 2001-2002 we
invested approximately $774,757 to complete its design of the PDR-2000,
eight-channel digital transfer trip communications product.

      The Company also developed a new platform for its GEN1 products allowing
for its use by the Canadian utilities.

                             PATENTS AND TRADEMARKS

      We do not have any patents covering any of our present products. We use
the trademark INIVEN for our commercial products. We believe that such trademark
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
and trademarks. We do not believe that our INIVEN trademark 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, 2003, we employed 21 persons on a full-time basis,
including 3 in management, 2 in sales, 2 in clerical, 1 in accounting, 1 in
purchasing, 3 in engineering and 9 in production. We have enjoyed good labor
relations.

      None of our employees are represented by a labor union or bound by a
collective bargaining agreement. We have never suffered a work stoppage. We
believe our future success

<PAGE>

will depend, in part, on our continued ability to recruit and retain highly
skilled management, marketing and technical personnel. We hire on a regular
basis approximately 125 contract employees.

Item 2. DESCRIPTION OF PROPERTY

      Our principal executive offices are located at 5 Columbia Somerville, New
Jersey. The space consists of approximately 7,000 square feet of which
approximately 5,000 square feet is dedicated to manufacturing, production and
testing and approximately 2,000 square feet is dedicated to administrative and
storage needs. The executive office houses both the manufacturing division and
the temporary staffing division. In the opinion of management, the space is
adequately covered by insurance.

Item 3. LEGAL PROCEEDINGS

            None

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

      We held our Annual Meeting of Shareholders on June 25, 2003. The following
individuals constituting all of the members of the Board of Directors were
elected:

<TABLE>
<CAPTION>
                           Name                          Number of Votes           Votes Withheld
                           ----                          ---------------           --------------
<S>                                                         <C>                          <C>
                           Robert S. Benou                  1,069,479                    605
                           Arpad J. Havasy                  1,068,760                  1,324
                           Lousi S. Massad                  1,069,312                    772
                           Marc R. Benou                    1,067,632                  2,452
                           Edward J. Rielly                 1,069,333                    751
                           Graham Bruce Edwards             1,067,478                  2,606
</TABLE>

      At this meeting, our stockholders also approved a proposal to amend our
Certificate of Incorporation to give effect to a one-for-two reverse split of
our Common Stock as follows:

              For               Against             Abstain
              ---               -------             -------
           1,058,464             11,250               370

      At this meeting, our stockholders also approved a proposal to grant an
aggregate of 800,000 shares of our Common Stock to our directors and officers as
follows:

              For               Against             Abstain            Not Voted
              ---               -------             -------            ---------
            733,074              41,195               408               295,407

      At this meeting, our stockholders also approved a proposal to select
Rosenberg Rich Baker Berman & Company as the Company's independent auditors for
the fiscal year ending July 31, 2003 as follows:

              For               Against             Abstain
              ---               -------             -------
           1,069,203              460                 421

<PAGE>

                                     PART II

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

               MARKET PRICE FOR COMMON STOCK AND CLASS A WARRANTS

      Our Common Stock is traded on the Nasdaq SmallCap Market, under the symbol
CNLG.

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

      The following table sets forth, for the periods indicated, the high and
low prices of the Company's Common Stock and Warrants (until August 30, 2002)
traded on the Nasdaq SmallCap Market for 2001, 2002 and 2003.

                              Units                Common Stock
2001                      High       Low          High       Low

   First Quarter        _______    _______       11.87      4.37

   Second Quarter       _______    _______       15.62      5.62

   Third Quarter        _______    _______       13.30      6.30

   Fourth Quarter       _______    _______       15.80      5.20

                              Units                Common Stock
2002                      High       Low          High       Low

   First Quarter        _______    _______        6.40      3.05

   Second Quarter       _______    _______       12.50      4.40

   Third Quarter        _______    _______        9.60      2.20

   Fourth Quarter       _______    _______       12.50      5.00

                              Units                Common Stock
2003                      High       Low          High       Low

   First Quarter        _______    _______        6.50      1.40

   Second Quarter       _______    _______        2.20      1.10

   Third Quarter        _______    _______        1.15       .75

   Fourth Quarter       _______    _______        1.19       .70

<PAGE>

(b) As of October 15, 2003, the Company's Common Stock was held by approximately
817 shareholders of record.

(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.

                      EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                                         Number of securities
                                                                                          remaining available
                                                                                          for future issuance
                                 Number of securities                                        under equity
                                  to be issued upon            Weighted-average           compensation plans
                                     exercise of              exercise price of          (excluding securities
                                 outstanding options,        outstanding options,         reflected in column
                                 warrants and rights         warrants, and rights                  (a)
                                        (a)                          (b)                           (c)
----------------------------------------------------------------------------------------------------------------
<S>                            <C>                           <C>                         <C>
Equity compensation            On June 25, 2003, our
plans approved by              Stockholders
security holders               approved the granting
                               of 800,000 shares of
                               our Common Stock to
                               our directors and
                               officers. As of
                               October 21, 2003 no
                               such shares have been
                               granted.
----------------------------------------------------------------------------------------------------------------
Equity compensation                    N/A
plans not approved by
security holders
----------------------------------------------------------------------------------------------------------------
Total
----------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
  Income & Expense Items as a Percentage Of               Income & Expense             Percentage
         Revenues From Operations                              Items                Increase/Decrease
----------------------------------------------------------------------------------------------------------
      For The Year Ended July 31, 2003                          2002                   2002 to 2003
----------------------------------------------------------------------------------------------------------
<S>                    <C>                                    <C>                       <C>
                       Product Sales &
     44.8%             other Income                             48.3%                     (3.5%)
----------------------------------------------------------------------------------------------------------
                       Service Sales &
     55.2%             other Income                             51.7%                      3.5%
----------------------------------------------------------------------------------------------------------

    (50.7%)            Product Cost of Revenue                (165.6%)                  (114.9%)
----------------------------------------------------------------------------------------------------------

    (61.6%)            Service Cost of Revenue                 (70.0%)                    (8.4%)
----------------------------------------------------------------------------------------------------------
                       Selling, general &
   (102.2%)            administrative                         (107.4%)                    (5.2%)
----------------------------------------------------------------------------------------------------------

      0.0%             Interest                                  0.0%                      0.0%
----------------------------------------------------------------------------------------------------------

    (51.6%)            Total costs & expenses                  (72.2%)                   (20.6%)
----------------------------------------------------------------------------------------------------------
                       Income (loss) before
   (109.6%)            income taxes                           (179.5%)                   (69.9%)
----------------------------------------------------------------------------------------------------------

     20.9%             Income taxes (credits)                   11.9%                      9.0%
----------------------------------------------------------------------------------------------------------
                       Net Loss before
    (88.7%)            extraordinary item                     (183.8%)                   (95.1%)
----------------------------------------------------------------------------------------------------------
</TABLE>

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

                              RESULTS OF OPERATIONS

2003 Compared to 2002

(Comparison does not include Independent Computer Maintenance Corporation, in
which, substantially all the assets were returned as per the Asset Rescission
Agreement)

      Product revenue for the fiscal year ended July 31, 2003 totaled $604,264 a
decrease of 25.8% or $210,421 from $814,687 reported for fiscal year ended July
31, 2002. The Company attributed the decrease in product revenue to a decline in
the Company's military sales during fiscal 2003.

      Service revenue for the fiscal year ended July 31, 2003 totaled $783,195 a
decrease of 10.3% or $90,131 from $873,326 reported for fiscal year ended July
31, 2002. The Company attributed the decrease in service revenue to the loss of
two customers that moved to a larger worldwide firm.

      Product cost for the fiscal year ended July 31, 2003 totaled $352,225 a
decrease of 73.9% or $997,151 from $1,349,376 reported for fiscal year ended
July 31, 2002. The Company attributes the decrease in product cost to the write
off of obsolete inventory from fiscal 2002 totaling $1,294,323.

<PAGE>

      Service cost for the fiscal year ended July 31, 2003 totaled $527,562 a
decrease of 13.7% or $84,050 from $611,612 reported for fiscal year ended July
31, 2002. The Company attributes the decrease in service cost to a decrease in
sales brought about by the loss of two customers to larger staffing firms.

      Gross profit for products for the years ended July 31, 2003 and July 31,
2002 totaled $252,039 and $(534,689), respectively, representing 41.7% and (66%)
of product revenue. The increase in gross profit for products is attributed to
the write off of obsolete inventory for fiscal 2002 totaling $1,294,323.

      Gross profit for services for the years ended July 31, 2003 and July 31,
2002 totaled $255,633 and $261,714, respectively, representing 32.6% and 30% of
service revenue. The decrease in gross profit for services of $6,081 is a result
of the increase in placements of positions that realize a lower profit margin
and a decrease in managerial positions that possess a high-end margin.

      Selling, General and Administrative expense for the years ended July 31,
2003 and July 31, 2002 totaled $1,584,988 and $1,813,587, respectively. The
Company attributed the decrease of $228,599 in selling, general and
administrative expense to a reduction of payroll from the layoff of two
employees and a decrease in employee benefits.

      Research and development for fiscal 2002 totaled $774,757, as a result of
the final stages of development of the PDR2000. There are no R&D expenses for
the fiscal year ended July 31, 2003.

      The Company's interest income for the fiscal year ended July 31, 2003
totaled $13,711 compared to $1,652 for fiscal year ended July 31, 2002. The
totals for fiscal years 2003 and 2002 include interest income derived from the
Company's interest bearing accounts through Unity Bank.

      The Company's interest expense for the fiscal year ended July 31, 2003
totaled $(17,684), compared to $(11,684) for fiscal year ended July 31, 2002.
The Company's interest expense for both fiscal 2003 and 2002 was due to interest
payments on the Company's line of credit through Unity Bank; the maturity date
of this line of credit is December 17, 2003.

      As a result of the foregoing, the Company reported a net loss from
continuing operations of $(1,376,683) or $(1.51) per share for fiscal 2003,
compared to a net loss from continuing operations of $(3,103,410) or $(8.18) per
share for fiscal 2002.

      The net loss from discontinued operations for fiscal year ended July 31,
2003 totaled $(28,876) or $0 per share and for fiscal year ended July 31, 2002
totaled $18,516 or $(0.05) per share. The discontinued operations were a result
of the Rescission of the Asset Purchase Agreement for the Company's former
computer sales and manufacturing company.

2002 Compared to 2001

      Product revenue for the fiscal year ended July 31, 2002 totaled $814,687
an increase of 14.8% or $120,264 from $694,423 reported for fiscal year ended
July 31, 2001. The Company attributed the increase in product revenues to the
completion of a backlog order from the Company's military division.

<PAGE>

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

      Product cost for the fiscal year ended July 31, 2002 totaled $1,349,376 an
increase of 63.6% or $858,157 from $491,219 reported for fiscal year ended July
31, 2001. The Company attributes the increase in product cost to the write-off
of obsolete inventory totaling $1,294,323 for fiscal year ended July 31, 2002.

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

      Gross profit for products for the years ended July 31, 2002 and July 31,
2001 totaled $(534,689) and $203,204, respectively, representing (65%) and 29%
of product revenue. The increase in gross profit for products is attributed to
the release of backlog orders from the Company's military division.

      Gross profit for services for the years ended July 31, 2002 and July 31,
2001 totaled $261,714 and $989,350, respectively, representing 30% and 22.5% of
service revenue. The decrease in gross profit for services is attributed to the
loss of the Company's two divisions, which provided an increased profit margin
for administrative staffing positions.

      Selling, General and Administrative expenses increased from $3,983,817 or
78% of sales in 2001 to $1,813,587 or (107%) of sales in 2002 as a result of
increased selling expense for the rollout of the PDR 2000 series.

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

      The Company's interest income for the fiscal year ended July 31, 2002
totaled $1,652, compared to $32,280 for fiscal year ended July 31, 2001. The
totals for fiscal years 2002 and 2001 include interest income derived from the
Company's interest bearing accounts through Unity Bank.

      The Company's interest expense for the fiscal year ended July 31, 2002
totaled $(11,684), compared to $0 for fiscal year ended July 31, 2001. The
Company's interest expense for fiscal year ended July 31, 2002 was due to
interest payments on the Company's line of credit through Unity Bank; the
maturity date of this line of credit is December 17, 2003.

      As a result of the foregoing, the Company reported a net loss from
continuing operations of $(3,103,410) or $(8.18) per share, compared to a net
loss from continuing operations of $(2,809,014) or $(12.40) per share for fiscal
2001.

      The net loss from discontinued operations for fiscal year ended July 31,
2002 totaled $18,516. The discontinued operations were a result of the
Rescission of the Asset Purchase Agreement for the Company's former computer
sales and manufacturing company.

<PAGE>

                         LIQUIDITY AND CAPITAL RESOURCES

      Working capital at July 31, 2003 was $630,316 compared to $1,735,629 at
year ended July 31, 2002. The increase in the working capital is attributable to
the addition of the Notes Receivable from the Asset Rescission Agreement, in
addition to the Miscellaneous Other Receivable, which is a refund from the state
for taxes from prior years.

      Accounts receivable have deceased from $221,015 at year-end July 31, 2002
to $88,778 at July 31, 2003. This decrease of $132,237 is the result of the loss
of the computer maintenance division.

      The Company obtained an unsecured line of credit with Unity Bank in the
amount of $250,000 on September 17, 2001. The interest is at a variable rate
based on the Wall Street Journal prime rate ("the index"). The maturity date of
the line of credit has been extended until December 17, 2003.

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

                                    INFLATION

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

                          CRITICAL ACCOUNTING POLICIES

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

                               Income Recognition

      Revenue for product sales are recognized at the time of shipment, products
are not sold on a conditional basis. Therefore, when delivery has occurred the
sale is complete as long as the collection of the resulting receivable is
probable.

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

<PAGE>

                 Receivables and Allowance for Doubtful Accounts

      The preparation of financial statements requires our management to make
estimates and assumptions relating to the collectivity of our accounts
receivable. Management specifically analyzes historical bad debts, customer
credit worthiness, current economic trends and changes in our customer payment
terms when evaluating the adequacy of the allowance for doubtful accounts. The
Company has a concentration risk in trade accounts receivable with significant
sales to the government and local agencies. The credit evaluation process has
mitigated the credit risk, such losses have been minimal, and within management
expectations.

                              Inventory Valuations

      Inventories are valued at the lower cost or market. Determined by a
first-in, first-out ("FIFO") method. Management reviews inventory for
salability.

                                    Warranty

      The Company provides a twelve-year warranty on its products; the warranty
covers parts and labor. The Company, at its option, repairs or replaces products
that are found defective during the warranty period providing proper preventive
maintenance procedures have been followed by customers. Repairs necessitated by
misuse of such products are not covered by our warranty.

      In cases of defective products, the customer typically returns them to the
Company's facility in Somerville, New Jersey. The Company's service personnel
will replace or repair the defective items and ship them back to the customer.
All servicing is completed at the Company's main facility and customers are
charged a fee for those service items that are not covered by the warranty. We
do not offer our customers any formal written service contracts.

                                  Income Taxes

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

Item 7. FINANCIAL STATEMENTS

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

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

      During the year ended July 31, 2003, there were no changes in or
disagreements with the Company's principal independent accountant on accounting
or financial disclosure.

<PAGE>

Item 8A. CONTROLS AND PROCEDURES

      The Company maintains disclosure controls and procedures designed to
ensure that the information the Company must disclose in its filings with the
Securities and Exchange Commission is recorded, processed, summarized and
reported on a timely basis. The Company's Chief Executive Officer, Chief
Financial Officer and its Chief Operating Officer have reviewed and evaluated
the Company's disclosure controls and procedures as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") as of the end of the period covered by this report (the
"Evaluation Date"). Based on such evaluation, such officers have concluded that,
as of the Evaluation Date, the Company's disclosure controls and procedures are
effective in bringing to their attention on a timely basis material information
relating to the Company required to be included in the Company's periodic
filings under the Exchange Act. There have not been any changes in the Company's
internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) that occurred during the Company's most recently
completed fiscal quarter that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial reporting.

                                    PART III

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

                                   MANAGEMENT
                        Directors and Executive Officers

      The following table sets forth certain information regarding the officers
and directors of the Company as of July 31, 2003.

NAME                      AGE       POSITION
Robert S. Benou           68        Chairman, Chief Executive Officer, Chief
                                    Financial Officer and Director
Marc R. Benou             35        President, Chief Operating Officer,
                                    Secretary and Director
Arpad J. Havasy           65        Director
Louis S. Massad           65        Director
Edward J. Rielly          35        Director
Graham B. Edwards         57        Director
Thomas Fogg               67        Officer, Vice President-Engineering

      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 new product development and supervision of sales and marketing.
Since June 2001, Mr. Benou has served as a director of Diversified Security
Solutions, Inc., a publicly held company that is a single-source/turn-key
provider of technology-based security solutions for medium and large companies
and government agencies. Mr. Benou is also a member of Diversified Security
Solutions' audit committee. 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

<PAGE>

management courses at Newark College of Engineering. Robert S. Benou is the
father of 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
material purchasing and inventory control. From March 1995 until May 1, 2001, he
served as Vice President. Mr. Benou has been on the company's Board and has
served as the Company's assistant secretary since March 1995. Mr. Benou attended
Lehigh and High Point University and holds a BS degree in Business
Administration and Management. Marc R. Benou is the son of Robert S. Benou, the
Company's Chairman and Chief Executive Officer.

      Arpad J. Havasy served as the Company's Executive Vice President from 1968
until June 2003. Mr. Havasy has been a director since 1968. Mr. Havasy is a
graduate of Electromos E's Gepeszeti Technikum (Hungary) and the University of
Budapest. In addition, Mr. Havasy has attended courses at both Rutgers
University and the American Management Association.

      Louis S. Massad has been a Director of the Company since April 1995. Mr.
Massad was Chief Financial Officer and a Director of 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.

      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.

      Graham Bruce Edwards has been a Director of the Company since June 2003.
Mr. Edwards has been the Director of Environmental Services for the Middlesex
County Improvement Authority, since August 1, 2002. From 1996 to 2002, Mr.
Edwards was the Northeast Regional Account/Training Manager with Healthcare
Services Group, Inc. Mr. Edwards is a graduate of Valley Forge Military Academy
where he earned an AA degree with an Accounting Major. Mr. Edwards served in the
military and for eighteen months was on active duty with the 101st Airborne
Division in Vietnam. Mr. Edwards holds a BS degree in Business Administration,
Management and Economics.

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

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

<PAGE>

Item 10. EXECUTIVE COMPENSATION

      The following table sets forth the total compensation paid to, accrued and
forgiven by each executive officer in 2003.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                             Annual                             Long Term
                                          Compensation                         Compensation

                                                                                            Closing
                                                                                            Price of
                                                                                             Common
                                                                                          Stock on the
                                                                                           Date of the     Securities
                                    Fiscal                              Restricted         Restricted      Underlying
Name and Principal                  Year-                                  Stock              Stock          Options
Position                             End            Salary                 Awards             Award*         /SARS (#)
<S>                                  <C>           <C>                     <C>                <C>              <C>
Robert Benou,                        2003          $310,000 **                  0             $ 0.00                0
Chairman, Chief                      2002          $290,000                90,000             $ 7.00                0
Executive Officer,                   2001          $270,000                80,000             $15.63           40,000
Chief Financial Officer
and Director

Marc Benou, President,               2003          $ 98,000 **                  0             $ 0.00                0
Chief Operating                      2002          $ 92,000                70,200             $ 7.00                0
Officer, Secretary and               2001          $ 72,000                20,000             $15.63           45,000
Director
</TABLE>

      *Note: Total reflects the 1:10 reverse split of the Company's Common
Stock, which was effected on January 10, 2003.

      **As of July 31, 2003, Mr. Robert Benou has forgiven the deferred receipt
of $216,916 of his salary and Mr. Marc Benou has forgiven the deferred receipt
of $22,836 of his salary.

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

                              EMPLOYMENT AGREEMENTS

      The Company has entered into a 5-year employment agreement commencing June
1, 1997 and ending May 31, 2002, with Robert Benou, which pursuant to its terms,
renews for one-year terms until cancelled by either the Company or Mr. Benou.
Mr. Benou's annual base salary is $310,000 and increases by $20,000 annually. In
addition, Mr. Benou is entitled to an annual bonus equal to 6% of the Company's
annual "income before income tax provision" as stated in its annual Form 10-KSB.
The employment agreement also entitles Mr. Benou to the use of an automobile and
to employee benefit plans, such as; life, health, pension, profit sharing and
other

<PAGE>

plans. Under the employment agreement, employment terminates upon death or
disability of the employee and the employee may be terminated by the Company for
cause.

      The Company entered into a 5-year employment agreement commencing June 1,
1997 and ending May 31, 2002, with Marc Benou, which, pursuant to its terms,
renews for one-year terms until cancelled by either the Company or Mr. Benou.
Mr. Benou's base salary is $98,000 and he receives annual increases of $6,000.
Mr. Benou is entitled to an annual bonus equal to 3% of the Company's annual
"income before income tax provision" as stated in its annual Form 10-KSB. The
employment agreement also entitles 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.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      As of October 15, 2003, 1,299,913 shares of our Common Stock were issued
and outstanding. The following table sets forth the beneficial ownership of
outstanding shares of Common Stock of the Company as of October 15, 2003 by any
person who, to the knowledge of the Company, owns beneficially more than 5% of
the outstanding Common Stock, by all directors of the Company, and by the
directors and officers of the Company as a group.

--------------------------------------------------------------------------------
           Name and Address          Amount and Nature of
          of Beneficial Owner        Beneficial Ownership        % of Ownership
--------------------------------------------------------------------------------
Robert S. Benou (1)                          19,000                   1.46%
--------------------------------------------------------------------------------
Arpad J. Havasy (1)                           2,250                    .17%
--------------------------------------------------------------------------------
Marc R. Benou (1)                            18,355                   1.41%
--------------------------------------------------------------------------------
Louis Massad (1)                              2,038                    .16%
--------------------------------------------------------------------------------
Thomas Fogg (1)                               3,600                    .28%
--------------------------------------------------------------------------------
Edward J. Rielly (1)                          1,500                    .12%
--------------------------------------------------------------------------------
Graham B. Edwards (1)                             0                    .00%
--------------------------------------------------------------------------------
All Executive Officers and
Directors as a Group (7                      46,743                   3.60%
Persons)
--------------------------------------------------------------------------------

(The above share amounts reflect the 1:10 reverse split of the Company's Common
Stock that was effected on January 10, 2003)

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

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Robert Benou, our Chairman, Chief Executive Officer and Chief Financial
Officer has made a series of non-recourse loans to the Company totaling
$180,427. The Company repaid $56,499 of the total balance during the fiscal year
ended July 31, 2003. Of the remaining amount $91,000 has forgiven, leaving a
balance of $32,928 for the fiscal year ended July 31, 2003. Each loan bears an
interest rate of 4.00% and must be paid by the Company one year from the date
the loan is made.

<PAGE>

                                     PART IV

Item 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits.

      See index of exhibits annexed hereto.

(b)   Reports on form 8K

      None.

                                Index of Exhibits

Exhibit No.       Description of Exhibits

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

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

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

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

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

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.
                  - incorporated by reference to Exhibit 1 to the Registrant's
                  Current Report on Form 8-K for November 1972.

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

<PAGE>

3.2               Amended By-Laws - incorporated by reference to Exhibit 3(h) to
                  the Registrant's Annual Report on Form 10-K for the fiscal
                  year ended July 31, 1981.

4.1               Specimen Certificate for shares of Common Stock (1)

10.1              Employment Agreement dated June 1, 1997 between Robert Benou
                  and Conolog Corporation (2)

10.2              Employment Agreement dated June 1, 1997 between Marc Benou and
                  Conolog Corporation (2)

10.3              Conolog Corporation 2002 Stock Option Plan (3)

14.1              Code of Ethics*

21.1              List of Subsidiaries*

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

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

32.1              Section 1350 Certification of Robert Benou*

32.2              Section 1350 Certification of Marc Benou*

----------
*     Filed herewith

(1)   Incorporated by reference to Registrant's Registration Statement on Form
      S-1 (File No. 33-92424).

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

(3)   Incorporated by reference to the Registrant's Proxy Statement pursuant to
      Section 14(a) of the Securities Exchange Act of 1934 filed on June 25,
      2003.

<PAGE>

                                   SIGNATURES

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

                               Conolog Corporation


                                             By: /s/ Robert S. Benou
                                                 -------------------
November 13, 2003                            Chairman, Chief Executive Officer

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


November 13, 2003                   /s/ Robert S. Benou
                                    -------------------
                                    Chairman, Chief Executive Officer and
                                    Chief Financial Officer

November 13, 2003                   /s/ Marc R. Benou
                                    -----------------
                                    President, Chief Operating Officer,
                                    Secretary and Director

November 13, 2003                   /s/ Arpad J. Havasy
                                    -------------------
                                    Director

November 13, 2003                   /s/ Louis S. Massad
                                    -------------------
                                    Director

November 13, 2003                   /s/ Edward J. Rielly
                                    --------------------
                                    Director

November 13, 2003                   /s/ Graham B. Edwards
                                    ---------------------
                                    Director

<PAGE>

                      Conolog Corporation and Subsidiaries

                        Consolidated Financial Statements

                                  July 31, 2003

<PAGE>

                          Annual Report on Form 10-KSB
                         Item 8, Item 14 (a)(1) and (2)
                        Consolidated Financial Statements
                            Year Ended July 31, 2003

                      Conolog Corporation and Subsidiaries
                             Somerville, New Jersey

<PAGE>

                      Form 10-KSB - Item 14 (a) (1) and (2)
                 Index to the Consolidated Financial Statements
                      Conolog Corporation and Subsidiaries
                                  July 31, 2003

                                                                      Page

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

     Independent Auditors' Report...................................  F-1

     Consolidated Balance Sheet - July 31, 2003 ....................  F-2 - F-3

     Consolidated Statements of Operations - Years Ended
         July 31, 2003 and 2002.....................................  F-4

     Consolidated Statements of Stockholders' Equity - Years
         Ended July 31, 2003 and 2002...............................  F-5

     Consolidated Statements of Cash Flows - Years Ended
         July 31, 2003 and 2002.....................................  F-6 - F-7

     Notes to the Consolidated Financial Statements.................  F-8 - F-22

<PAGE>

                          Independent Auditors' Report

To the Board of Directors of
Conolog Corporation and Subsidiaries

We have audited the accompanying consolidated balance sheet of Conolog
Corporation and Subsidiaries as of July 31, 2003 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended July 31, 2003 and 2002. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Conolog Corporation
and Subsidiary as of July 31, 2003, and the results of its operations and its
cash flows for the years ended July 31, 2003 and 2002, in conformity with
accounting principles generally accepted in the United States of America.


/s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
November 3, 2003


                                      F-1
<PAGE>

                      Conolog Corporation and Subsidiaries
                           Consolidated Balance Sheet
                                  July 31, 2003

<TABLE>
<S>                                                                      <C>
                                     ASSETS
Current Assets

   Cash                                                                  $   189,816
   Accounts receivable - net allowance for doubtful accounts of $2,000        88,778
   Other receivables                                                         396,975
   Note receivable                                                           102,471
   Inventory                                                                 350,000
   Other current assets                                                       24,368
                                                                         -----------

         Total Current Assets                                              1,152,408
                                                                         -----------

Property, Plant and Equipment
      Machinery and equipment                                              1,328,898
      Furniture and fixtures                                                 450,619
      Computer software                                                      147,203
      Leasehold improvements                                                  30,265
                                                                         -----------
                                                                           1,956,985
      Less accumulated depreciation and amortization                      (1,797,711)
                                                                         -----------
                                                                             159,274

Inventory                                                                  1,599,128

Note receivable                                                              142,340

Other assets                                                                   2,235
                                                                         -----------

         Total Assets                                                    $ 3,055,385
                                                                         ===========
</TABLE>

See notes to the consolidated financial statements.


                                      F-2
<PAGE>

                      Conolog Corporation and Subsidiaries
                           Consolidated Balance Sheet
                                  July 31, 2003

<TABLE>
<S>                                                                                        <C>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
      Accounts payable                                                                     $    112,646
      Accrued expenses                                                                           25,556
      Accrued legal fees                                                                        116,355
      Accrued payroll                                                                            17,535
      Line of credit                                                                            250,000
                                                                                           ------------

           Total Current Liabilities                                                            522,092
                                                                                           ------------

Non Current Liabilities
      Loan from Officer                                                                          32,928
                                                                                           ------------

           Total Liabilities                                                                    555,020

Stockholders' Equity:

   Preferred Stock, par value $.50; Series A; 4% cumulative; 162,000 shares authorized;
      155,000 shares issued and outstanding                                                      77,500

   Preferred Stock, par value $.50; Series B; $.90 cumulative; 50,000
      shares authorized; 1,197 shares issued and outstanding                                        597

   Common Stock, par value $0.01; 20,000,000 shares authorized; issued 1,299,913 shares,
      including 220 shares held  in Treasury                                                     12,999

   Contributed Capital                                                                       21,729,632

   Retained (Deficit)                                                                       (18,897,959)

   Treasury Shares at Cost                                                                     (131,734)

   Deferred Compensation                                                                       (222,212)

   Prepaid Consultant                                                                           (68,458)
                                                                                           ------------

           Total Stockholders' Equity                                                         2,500,365
                                                                                           ------------

           Total Liabilities and Stockholders' Equity                                      $  3,055,385
                                                                                           ============
</TABLE>

See notes to the consolidated financial statements.


                                      F-3
<PAGE>

                      Conolog Corporation and Subsidiaries
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                             Year Ended July 31,
                                                                                       -------------------------------
                                                                                                              2002
                                                                                          2003             As Restated
                                                                                       -----------         -----------
<S>                                                                                    <C>                 <C>
Service revenue                                                                        $   783,195         $   873,326
Product revenue                                                                            604,264             814,687
                                                                                       -----------         -----------
      Total Revenue                                                                      1,387,459           1,688,013
                                                                                       -----------         -----------
Costs of service revenue
                                                                                           527,562             611,612
Costs of product revenue                                                                   352,225           1,349,376
                                                                                       -----------         -----------
         Total Cost of Revenue                                                             879,787           1,960,988
                                                                                       -----------         -----------

Gross Profit                                                                               507,672            (272,975)
                                                                                       -----------         -----------

Selling, general and administrative                                                      1,584,988           1,813,587
Stock based compensation                                                                   443,135             432,359
Research and development                                                                        --             774,757
Impairment of goodwill                                                                     322,338                  --
                                                                                       -----------         -----------
         Loss From Operations                                                           (1,842,789)         (3,293,678)
                                                                                       -----------         -----------

Other Income (Expense)
      Interest income                                                                       13,711               1,652
      Interest expense                                                                     (17,432)            (11,684)
      Other Expense                                                                        (18,148)                 --
      Other Income                                                                         164,016
                                                                                       -----------         -----------
         Total Other Income (Expense)                                                      142,147             (10,032)
                                                                                       -----------         -----------

Loss From Continuing Operations
Before Income Taxes                                                                     (1,700,642)         (3,303,710)
(Benefit from) Income Taxes                                                               (323,959)           (200,300)
                                                                                       -----------         -----------

Loss From Continuing Operations                                                        $(1,376,683)        $(3,103,410)
                                                                                       ===========         ===========

Discontinued Operations:
   Income (Loss) From Discontinued Operations (Net of income tax benefit of $0)            (28,876)             18,516

   Gain From Disposal of  Discontinued Operations (Net of income tax expense
      of $0)                                                                                24,446                  --
                                                                                       -----------         -----------

Net Loss                                                                               $(1,381,113)        $(3,084,894)
                                                                                       ===========         ===========

Loss Per Common Share  - Continuing Operations                                         $     (1.51)        $     (8.18)
                                                                                       ===========         ===========
Income Per Common Share - Discontinuing Operations                                     $         0         $     (0.05)
                                                                                       ===========         ===========
</TABLE>

See notes to the consolidated financial statements.


                                      F-4
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Consolidated Statement of Stockholders' Equity

<TABLE>
<CAPTION>
                                           Series A          Series B                                              Retained
                                          Preferred         Preferred                          Contributed         Earnings
                                            Stock             Stock         Common Stock          Capital          (Deficit)
                                       ---------------   ---------------   ---------------    ---------------   ---------------
<S>                                    <C>               <C>               <C>                <C>               <C>
Balance at July 31, 2001               $        77,500   $           597   $        28,716    $    19,234,345   $   (14,423,592)
Debt to equity conversion                           --                --             7,400            425,100                --
Common shares issued to employees                   --                --             7,625            396,609                --
Common shares issued to consultants                 --                --             3,310            247,817                --
Common shares issued for commissions                --                --               190             11,820                --
Shares issued for services to be
provided                                            --                --             1,064             69,132                --
Common shares issued for legal
services                                            --                --             1,500            105,000                --
Amortization of consultant
services                                            --                --                --                 --                --
Net loss for the year                               --                --                --                 --        (3,084,894)
Dividends                                           --                --                --              4,180            (4,180)
                                       ---------------   ---------------   ---------------    ---------------   ---------------
Balance at July 31, 2002               $        77,500   $           597   $        49,805    $    20,494,003   $   (17,512,666)
                                       ---------------   ---------------   ---------------    ---------------   ---------------
Forgiveness of salary by officer                    --                --                --             95,000                --
Common shares issued to employees                   --                --            15,253            650,094                --
Common shares issued to consultants                 --                --               925             27,223                --
Common shares issued for commissions                --                --                 6                270                --
Shares issued for services to be
provided                                            --                --             3,100            248,900                --
Forgiveness of salary by
   employees                                        --                --                --            247,622                --
Effect of 1-for-10 reverse stock
   split                                            --                --           (56,090)            56,090                --
Write-off of subscription
   receivable                                       --                --                --            (93,760)               --
Amortization of consultant
services                                            --                --                --                 --                --
Net loss for the year                               --                --                --                 --        (1,381,113)
Dividends                                           --                --                --              4,180            (4,180)
                                       ---------------   ---------------   ---------------    ---------------   ---------------
Balance at July 31, 2003               $        77,500   $           597   $        12,999    $    21,729,632   $   (18,897,959)
                                       ===============   ===============   ===============    ===============   ===============

<CAPTION>
                                                                               Consultant          Total
                                           Treasury        Subscription         Deferred       Services to be     Stockholders'
                                             Stock          Receivable        Compensation        Provided            Equity
                                       ---------------   ---------------     --------------    --------------    ---------------
<S>                                    <C>               <C>                 <C>               <C>               <C>
Balance at July 31, 2001               $      (131,734)  $       (93,750)    $           --    $     (212,240)   $     4,479,842
Debt to equity conversion                           --                --                 --                --            432,500
Common shares issued to employees                   --                --                 --                --            404,234
Common shares issued to consultants                 --                --                 --                --            251,127
Common shares issued for commissions                --                --                 --                --             12,010
Shares issued for services to be
provided                                            --                --                 --           (70,196)                --
Common shares issued for legal
services                                            --                --                 --                --            106,500
Amortization of consultant
services                                            --                --                 --           212,240            212,240
Net loss for the year                               --                --                 --                --         (3,084,894)
Dividends                                           --                --                 --                --                 --
                                       ---------------   ---------------     --------------    --------------    ---------------
Balance at July 31, 2002               $      (131,734)  $       (93,750)    $           --    $      (70,196)   $     2,813,559
                                       ---------------   ---------------     --------------    --------------    ---------------
Forgiveness of salary by officer                    --                --                 --                --             95,000
Common shares issued to employees                   --                --           (222,212)               --            443,135
Common shares issued to consultants                 --                --                 --                --             28,148
Common shares issued for commissions                --                --                 --                --                276
Shares issued for services to be
provided                                            --                --                 --          (252,000)                --
Forgiveness of salary by
   employees                                        --                --                 --                --            247,622
Effect of 1-for-10 reverse stock
   split                                            --                --                 --                --                 --
Write-off of subscription
   receivable                                       --            93,750                 --                --                 --
Amortization of consultant
services                                            --                --                 --           253,738            253,738
Net loss for the year                               --                --                 --                --         (1,381,113)
Dividends                                           --                --                 --                --                 --
                                       ---------------   ---------------     --------------    --------------    ---------------
Balance at July 31, 2003               $      (131,734)  $            --     $     (222,212)   $      (68,458)   $     2,500,365
                                       ===============   ===============     ==============    ==============    ===============
</TABLE>

See notes to the consolidated financial statements.


                                       F-5
<PAGE>

                      Conolog Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                 Year Ended July 31,
                                                                           -------------------------------
                                                                                                   2002
                                                                              2003             As Restated
                                                                           -----------         -----------
<S>                                                                        <C>                 <C>
Cash Flows From Operating Activities
    Continuing Operations Net Loss                                         $(1,376,683)        $(3,103,410)
    Adjustments to Reconcile Net Loss to Net Cash Used in Operating
       Activities
    Impairment of goodwill                                                     322,338                  --
    Common stock for commissions                                                    --              12,009
    Common stock base compensation                                             443,135             402,335
    Amortization of prepaid consulting expense                                 253,738             191,419
    Depreciation and amortization                                               65,702              54,510
    Bad debt expense                                                                --              20,075
    Deferred income taxes                                                     (123,662)            (38,837)
(Increase) Decrease in Operating Assets
    Accounts receivable                                                        132,233             283,948
    Inventories                                                               (255,135)          1,064,173
    Other current assets                                                       (75,449)             35,973
    Other assets                                                                 1,065               4,216
Increase (Decrease) in Operating Liabilities
    Accounts payable                                                           (65,237)             57,105
    Settlement payable                                                              --            (325,000)
    Accrued expenses and other liabilities                                    (115,890)            (43,097)
    Deferred revenue                                                           (14,891)            (14,609)
    Deferred gain on sale of assets                                                 --             (10,083)
                                                                           -----------         -----------
      Net Cash Used in Continuing Operations                                  (808,732)         (1,053,925)
                                                                           -----------         -----------

Discontinued Operations
    Net (loss) increase                                                        (28,876)             18,516
    Decrease in net assets of discontinued operations                          253,358              10,663
                                                                           -----------         -----------
      Cash Provided by Discontinued Operations                                 224,482              29,179
                                                                           -----------         -----------
      Net Cash Used in Operating Activities                                   (584,250)         (1,024,746)
                                                                           -----------         -----------

Cash Flows From Investing Activities
   Purchase of equipment and leasehold improvements                             (8,900)            (58,083)
                                                                           -----------         -----------
      Net Cash Used in Investing Activities                                     (8,900)            (58,083)
                                                                           -----------         -----------

Cash Flows From Financing Activities
   Proceeds from line of credit                                                                    250,000
   Proceeds from employee note receivables                                          --              50,339
   Proceeds from issuance of convertible debentures                                 --             432,500
   Proceeds from other loan                                                    123,028                  --
   Proceeds from note receivable                                                42,539                  --
   Proceeds from sale of ICM                                                   300,000                  --
                                                                           -----------         -----------
      Net Cash Provided by Financing Activities                                466,467             732,839
                                                                           -----------         -----------
 Net Decrease in Cash and Equivalents                                         (126,683)           (349,990)
Cash and Equivalents at Beginning of Period                                    316,499             666,489
                                                                           -----------         -----------
Cash and Equivalents at End of Period                                      $   189,816         $   316,499
                                                                           ===========         ===========
</TABLE>

See notes to the consolidated financial statements.


                                      F-6
<PAGE>

                      Conolog Corporation and Subsidiaries
               Consolidated Statements of Cash Flows - (Continued)

                SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for:

<TABLE>
<CAPTION>
                                                                 Year Ended July 31,
                                                              ------------------------
                                                                2003            2002
                                                              --------        --------
<S>                                                           <C>             <C>
   Taxes                                                      $     --        $    890
   Interest                                                     17,432          11,684

Noncash investing and financing activities:
   Conversion of debentures                                         --         432,500
   Common stock issued for prepaid consulting services         252,000          70,196
   Forgiveness of loan from officer                             91,000              --
   Notes payable issued for sale of ICM                        287,350              --
   Write off of subscription receivable                         93,750              --
</TABLE>

See notes to the consolidated financial statements.


                                       F-7
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements
                                  July 31, 2003

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Nature of Organization

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

            The Company formed a wholly owned Subsidiary, Nologoc Corporation.
            In September 1998, Nologoc Corporation purchased the assets of Atlas
            Design, Incorporated. In January, 2001, Nologoc Corporation
            purchased the assets of Prime Time Staffing, Incorporated and
            Professional Temp Solutions Incorporated. Atlas Design, Prime Time
            Staffing and Professional Temp Solutions provide short-term and
            long-term qualified engineering and technical staff, as well as
            human resource consulting to various industries.

            During the year ended July 31, 2000, the Company formed a wholly
            owned Subsidiary, Lonogoc Corporation. In August, 2000, Lonogoc
            Corporation purchased the assets of Independent Computer Maintenance
            Corporation ("ICM") and was operating under the trade name, "ICM".
            "ICM" provides installation, maintenance, and troubleshooting of
            computer systems and networks. In October 2002, the Company
            rescinded the asset purchase agreement with Independent Computer
            Maintenance Corporation ("ICM") and discontinued its operations.

      Principles of Consolidation

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

      Cash and Equivalents

            For the purpose of the statements of cash flows, cash equivalents
            include time deposits, certificates of deposit and all highly liquid
            debt instruments with original maturities of three months or less.

      Inventories

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


                                      F-8
<PAGE>

      Property, Plant and Equipment

            Property, plant and equipment are carried at cost, less allowances
            for depreciation and amortization. Depreciation and amortization are
            computed by the straight-line method over the estimated useful lives
            of the assets. Depreciation and amortization was $65,702 and $69,512
            for the years ended July 31, 2003 and 2002, respectively. Repairs
            and maintenance expenditures which do not extend the useful lives of
            the related assets are expensed as incurred.


                                      F-9
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

      Research and Development

            Research and Development costs are expensed as incurred.

      Revenue Recognition

            Revenue for product sales are recognized at the time of shipment;
            products are not sold on a conditional basis. Therefore, when
            delivery has occurred the sale is complete as long as the collection
            of the resulting receivable is probable.

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

      Advertising Costs

            Advertising costs are charged to operations when incurred.
            Advertising expense was $9,941 and $28,563 for the years ended July
            31, 2003 and 2002, respectively.

      Shipping and Handling Costs

            Shipping and handling costs are expensed as incurred and amounted to
            $16,770 and $19,528 for the years ended July 31, 2003 and 2002,
            respectively.

      Securities Issued for Services

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

      Income Taxes

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


                                      F-10
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

      Loss Per Share of Common Stock

            Loss per share of common stock is computed by dividing net loss
            (after dividends on preferred shares) by the weighted average number
            of shares of Common Stock outstanding during the year. The preferred
            dividends are not reflected in arriving at the net loss as they are
            not material and would have no effect on earning per share available
            to common shareholders. The number of shares used in the
            computations were 917,349 and 379,183 for 2003 and 2002
            respectively. The effect of assuming the exchange of the warrants,
            Series A Preferred Stock and Series B Preferred Stock in 2003 and
            2002 would be anti-dilutive. All share and per share amounts reflect
            the 1:10 reverse split, which took place on January 10, 2003.

      Use of Estimates

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and assumptions that affect the reported amounts of assets and
            liabilities and disclosure of contingent assets and liabilities at
            the date of the financial statements and the reported amounts of
            revenues and expenses during the reporting period. Actual results
            could differ from those estimates.

NEW ACCOUNTING PRONOUNCEMENTS

      In August 2001, the Financial Accounting Standards Board ("FASB") issued
      SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
      Assets. This statement addresses financial accounting and reporting for
      the impairment or disposal of long-lived assets. SFAS No. 144 supercedes
      SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to be
      Disposed of, and provides guidance on classification and accounting for
      such assets when held for sale or abandonment. SFAS No. 144 is effective
      for fiscal years beginning after December 15, 2001. The adoption of SFAS
      No. 144 did not have a significant impact on the Company's results of
      operations or financial position.

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
      No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
      Corrections. This statement rescinds SFAS No. 4, Reporting Gains and
      Losses from Extinguishment of Debt, and an amendment of that statement,
      SFAS No. 44, Accounting for Intangible Assets of Motor Carriers, and SFAS
      No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
      This statement amends SFAS No. 13, Accounting for Leases, to eliminate
      inconsistencies between the required accounting for sales-leaseback
      transactions and the required accounting for certain lease modifications
      that have economic effects that are similar to sales-leaseback
      transactions. Also, this statement amends other existing authoritative
      pronouncements to make various technical corrections, clarify meanings, or
      describe their applicability under changed conditions. Provisions of SFAS
      No. 145 related to the rescissions of SFAS No. 4 were effective for the
      Company on November 1, 2002 and provisions affecting SFAS No. 13 were
      effective for transactions occurring after May 15, 2002. The adoption of
      SFAS No. 145 did not have a significant impact on the Company's results of
      operations or financial position.

      In June 2003, the FASB issued SFAS No. 146, Accounting for Costs
      Associated with Exit or Disposal Activities. This statement covers
      restructuring type activities beginning with plans initiated after
      December 31, 2002. Activities covered by this standard that are entered
      into after that date will


                                      F-11
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

NEW ACCOUNTING PRONOUNCEMENTS, Continued

      be recorded in accordance with provisions of SFAS No. 146. The adoption of
      SFAS No. 146 did not have a significant impact on the Company's results of
      operations or financial position.

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
      Compensation-Transition and Disclosure, which provides alternative methods
      of transition for a voluntary change to fair value based method of
      accounting for stock-based employee compensation as prescribed in SFAS
      123, Accounting for Stock-Based Compensation. Additionally, SFAS No. 148
      required more prominent and more frequent disclosures in financial
      statements about the effects of stock-based compensation. The provisions
      of this Statement are effective for fiscal years ending after December 15,
      2002. The adoption of this statement is not expected to have a significant
      impact on the Company's results of operations of financial position.

      In April 2003, the FASB issued SFAS Statement No. 149, "Amendment of
      Statement 133 on Derivative Instruments and Hedging Activities", which
      amends and clarifies financial accounting and reporting for derivative
      instruments, including certain derivative instruments embedded in other
      contracts (collectively referred to as derivatives) and for hedging
      activities under FASB Statement No. 133, Accounting for Derivative
      Instruments and Hedging Activities. This Statement is effective for
      contracts entered into or modified after June 30, 2003, except for certain
      hedging relationships designated after June 30, 2003. Most provisions of
      this Statement should be applied prospectively. The adoption of this
      statement is not expected to have a significant impact on the Company's
      results of operations or financial position.

      In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for
      Certain Financial Instruments with Characteristics of both Liabilities and
      Equity". This Statement establishes standards for how an issuer classifies
      and measures certain financial instruments with characteristics of both
      liabilities and equity. It requires that an issuer classify a financial
      instrument that is within its scope as a liability (or an asset in some
      circumstances). This statement is effective for financial instruments
      entered into or modified after May 31, 2003, and otherwise is effective at
      the beginning of the first interim period beginning after June 15, 2003,
      except for mandatorily redeemable financial instruments of nonpublic
      entities, if applicable. It is to be implemented by reporting the
      cumulative effect of a change in an accounting principle for financial
      instruments created before the issuance date of the Statement and still
      existing at the beginning of the interim period of adoption. The adoption
      of this statement is not expected to have a significant impact on the
      Company's results of operations or financial position.

      In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
      Guarantor's Accounting and Disclosure Requirements for Guarantees,
      Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a
      company, at the time it issues a guarantee, to recognize an initial
      liability for the fair value of obligations assumed under the guarantees
      and elaborates on existing disclosure requirements related to guarantees
      and warranties. The initial recognition requirements are effective for the
      Company during the third quarter ending March 31, 2003. The adoption of
      FIN 45 did not have a significant impact on the Company's results of
      operations or financial position.

      In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
      Consolidation of Variable Interest Entities, an Interpretation of ARB No.
      51. FIN 46 requires certain variable interest entities to be consolidated
      by the primary beneficiary of the entity if the equity investors in the
      entity do not have the


                                      F-12
<PAGE>

      characteristics of a controlling financial interest or do not have
      sufficient equity at risk for the entity to finance its activities without
      additional subordinated financial support from other parties. FIN 46 is
      effective for all new variable interest entities created or acquired after
      January 31, 2003. For variable interest entities created or acquired prior
      to February 1, 2003, the provisions of FIN 46 must be applied for the
      first interim or annual period beginning after June 15, 2003. The adoption
      of FIN 46 did not have a significant impact on the Company' results of
      operations or financial position.


                                      F-13
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

      At times throughout the year, the Company may maintain certain bank
      accounts in excess of FDIC insured limits. The company provides credit in
      the normal course of business. The Company performs ongoing credit
      evaluations of its customers and maintains allowances for doubtful
      accounts based on factors surrounding the credit risk of specific
      customers, historical trends, and other information.

INVENTORY

      At July 31, 2003 inventory consisted of the following:

            Finished goods                                $  806,199
            Work in process                                   21,477
            Raw materials                                  1,121,452
                                                          ----------
                                                          $1,949,128
                                                          ==========

      Inventory of $1,599,128 was classified as non-current as only the amount
      the Company expects to realize in the next operating cycle has been
      classified as current.

OTHER RECEIVABLES

      Other receivables represents a $73,016 refund from the State of New Jersey
      for unemployment and disability taxes assessed in prior years based on a
      redetermination by the State of the Company's unemployment and disability
      ratings and $323,959 resulting from the sale of the Company's New Jersey
      net operating loss.

IMPAIRMENT OF GOODWILL

      Goodwill is assigned to specific reporting units and is reviewed for
      possible impairment at least annually or more frequently upon the
      occurrence of an event or when circumstances indicate that a reporting
      unit's carrying amount is greater than its fair value. During the year
      ended July 31, 2003, the Company determined that the carrying amount of
      the goodwill exceeded its fair value, which was estimated based on the
      present value of expected future cash inflows. Accordingly, a goodwill
      impairment loss of $322,338 was recognized during the year ended July 31,
      2003.

      The Company has adopted the provisions of FASB Statement 142 during the
      year ended July 31, 2003. Financial condition and results of operations in
      accordance with statement 142 are reflected in the accompanying 2003
      financial statements. The following pro forma information shows what
      income and earnings per share would have been had FASB Statement 142 been
      in effect for fiscal 2002:

                                                         July 31,
                                                      -------------
                                                           2002
                                                      -------------
            Net Loss as reported                      $  (3,084,894)
            Add back amortization for goodwill               20,102
                                                      -------------
            Adjusted Net Loss                         $  (3,064,792)
                                                      =============

            Basic loss per share as reported          $       (8.13)
            Add back amortization for goodwill                   --
                                                      -------------
                                                      $       (8.13)
                                                      =============


                                      F-14
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

OPERATING LEASE COMMITMENTS

      The Company leases their facilities and various equipment under operating
      leases. Total rental expense for all operating leases of the Company
      amounted to approximately $36,256 and $64,607 during the years ended July
      31, 2003 and 2002, respectively. The Company is currently on a month to
      month lease.

INCOME TAXES

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

                                                  July 31,
                                        ---------------------------
                                           2003              2002
                                        ---------         ---------
            Current Income Taxes
                     Federal            $      --         $      --
                     State               (323,959)         (200,300)
                                        ---------         ---------
                                        $(323,959)        $(200,300)
                                        =========         =========

      In 1998, the State of New Jersey enacted legislation allowing emerging
      technology and/or biotechnology companies to sell their unused New Jersey
      Net Operating Loss ("NOL") Carryover and Research and Development Tax
      Credits ("R&D" Credits) to corporate taxpayers in New Jersey. During
      fiscal year ended July 31, 2003, the Company entered into an agreement
      under which it sold a portion of its NOL carryover. The total estimated
      proceeds of this transaction was recorded as a benefit in the accompanying
      financial statements.

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

                                                          July 31,
                                                   ----------------------
                                                    2003            2002
                                                   ------          ------
            Federal statutory tax rate              (34.0)%         (34.0)%
            Valuation Allowance on Net
            Operating Loss Carryover                 15.0            28.5
            Permanent and other differences            --              --
                                                   ------          ------
                                                    (19.0)%          (5.5)%
                                                   ======          ======

      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.


                                      F-15
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

INCOME TAXES, Continued

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

      At July 31, 2003, the Company has net operating loss carryforwards for
      federal and state income tax purposes of approximately $15,040,598 and
      $207,973, respectively, which is available to offset future Federal and
      State taxable income, if any. The federal and state net operating loss
      carryforwards expire as follows:

                                                Federal              State
                                           ----------------    ---------------
                  2007                     $             --    $        21,912
                  2008                                   --             57,322
                  2010                                   --            128,739
                  2013                              253,276                 --
                  2014                            1,232,010                 --
                  2015                              957,538                 --
                  2017                              550,752                 --
                  2018                            1,656,388                 --
                  2019                              859,696                 --
                  2020                            2,141,730                 --
                  2021                            2,738,451                 --
                  2022                             3084,894                 --
                  2023                            1,474,863
                                           ----------------    ---------------
                                           $     14,949,598    $       207,973
                                           ================    ===============

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

<TABLE>
<CAPTION>
                                                                       Federal             State
                                                                     -----------         --------
<S>                                                                  <C>                 <C>
            Net operating losses and tax credit carryforwards        $ 5,100,000         $ 18,718
            Less: valuation allowance                                 (5,100,000)         (18,718)
                                                                     -----------         --------
                     Net Deferred Tax Assets                         $        --         $     --
                                                                     ===========         ========
</TABLE>

      The net change in the valuation allowance for the year ended July 31, 2003
      was approximately $400,000.


                                      F-16
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

      Loan From Officer

            Loan from officer represents advances made by an officer of the
            company. The advances are due one year after the date of receipt and
            bear interest at a rate of 4% per annum. Total advances made by the
            officer during the year were $180,427. Repayments to the officer
            were $56,499. During the year, the officer forgave $91,000 of the
            loan. The balance due to the officer at July 31, 2003 was $32,928.

            During 2003, the Company adopted the provisions of SFAS 145,
            "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
            Statement No. 13, and Technical Corrections." This statement
            rescinds SFAS 4, "Reporting Gains and Losses from Extinguishment of
            Debt" wherein the FASB determined that gains and losses from debt
            extinguishments were to be recorded as extraordinary items.
            Accordingly, other income for the year ended July 31, 2003 includes
            $91,000 of gain related to the forgiveness of loans from an officer.

      Line Of Credit

            The Company has a $250,000 twelve month revolving line of credit
            with a bank expiring December 17, 2003. The line of credit bears
            interest at the prime rate. As of July 31, 2003, the Company had
            borrowed $250,000 on the line of credit.

      Profit Sharing Plan

            The Company sponsors a qualified profit sharing plan that covers
            substantially all full time employees. Contributions to the plan are
            discretionary and determined annually by management. No
            contributions to the plan were made during the years ended July 31,
            2003 and 2002.

            The Plan also provides an employee savings provision (401(k) plan)
            whereby eligible participating employees may elect to contribute up
            to 15% of their compensation to an investment trust.

      Capital Stock

            On January 10, 2003, the Board of Directors authorized a 1 for 10
            reverse stock split of the Company's $.01 par value common stock.

            The Series A Preferred Stock provides 4% cumulative dividends, which
            were $105,283 ($0.68 per share) in arrears at July 31, 2003. 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 $48,000 per share. The Company may redeem the Series
            A Preferred Stock at $.50 per share plus accrued and unpaid
            dividends.

            The Series B Preferred Stock provides cumulative dividends of $0.90
            per share, which were $34,536 ($28.85 per share) in arrears at July
            31, 2003. In addition, each share of Series B Preferred Stock is
            convertible into .005 of one share of Common Stock.

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


                                      F-17
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

      Convertible Debentures

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

            The Optionee has the right to convert the principal amount of the
            debenture, or any portion thereof, which is at least $25,000, into
            that number of shares of common stock of the Company, obtained by
            dividing the principal amount of the debenture by the conversion
            price of $27.20 per share (reflects the 1:4 and 1:10 reverse split
            that became effective on April 19, 2002 and January 10, 2003,
            respectively). The Option Agreement provides that the voting power
            of any conversion shares owned by the Optionee will be voted in the
            same manner as shares voted by all other shareholders of the
            Company. Through the year ending July 31, 2001, the Optionee
            purchased $100,000 of convertible debentures and converted $75,000
            of them into common stock.

            On July 12, 2002, the Company and the Optionee entered into an
            agreement, whereby, the remaining dollar amount of convertible
            debentures was reduced to $1,200,000. In addition, the agreement
            called for the conversion of the then $25,000 outstanding debenture
            at a reduced conversion price of $4.166 per share (reflects the 1:10
            reverse split that became effective on January 10, 2003). Pursuant
            to this Agreement, the Optionee converted the $25,000 convertible
            debenture into 60,000 shares (the "Shares") of the Company's common
            stock. The Company and Clog II also agreed that, if the net proceeds
            received by the Optionee from the Shares during the ninety day
            period following July 12, 2002 was less than approximately $28,000,
            the Company would issue the Optionee, the number of additional
            shares of the Company's common stock equal to the amount of the
            shortfall divided by the last sale price of the Shares sold by the
            Optionee (subject to a maximum amount limitation). Based on the
            foregoing, the Company issued 82,490 shares of its common stock to
            the Optionee.

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


                                      F-18
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

      Major Customers

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

                             Sales to Major       Number of       Percentage of
          Year Ended            Customers         Customers           Total
         ------------       ----------------     -----------     ---------------
             2003               $665,668              3               44.5%
             2002               $597,954              2               26.6%

      Legal Matters

            A former employee and consultant has litigation pending against
            Conolog Corporation. Conolog denies any obligation. Management has
            vigorously defended this litigation. The matter has been dismissed
            without prejudice to allow the parties to participate in mediation.
            Mediation was unsuccessful. The case is currently inactive.

STOCK OPTION PLAN

      2002 Stock Option Plan

            On April 23, 2002, the Board of Directors of the Company adopted the
            2002 Stock Option Plan ("the 2002 Plan"). Under the 2002 Plan, the
            Company may grant up to 190,000 shares of common stock as either
            incentive stock options under Section 422A of the Internal Revenue
            Code or nonqualified stock options. Subject to the terms of the 2002
            Plan, options may be granted to eligible persons at any time and
            under such terms and conditions as determined by the 2002 Stock
            Option Committee (`the Committee"). Unless otherwise determined by
            the Committee, each stock option shall terminate no later than ten
            years (or such shorter time as may be fixed by the Committee) after
            the date in which it was granted. The exercise price for incentive
            stock options must be at least one hundred percent (100%) of the
            fair market value of common stock as determined on the date of the
            grant. The exercise price for nonqualified stock options may not be
            granted at less than eighty-five percent (85%) of the fair market
            value of the shares on the date of grant.

            As of July 31, 2003, there had been no shares granted under the 2002
            Plan.


                                      F-19
<PAGE>

COMMON STOCK ISSUED FOR SERVICES

      Consulting Agreements

            In March of 2002, the Company entered into a one year consulting
            agreement with Leeward Consulting Group, LLC., David Michael, LLC.,
            Hannah Wolfson, LLC., and McFadden Group, LLC. In consideration of
            the consulting services to be provided, the Company, at the signing
            of the agreement, granted Leeward Consulting Group, LLC., David
            Michael, LLC., Hannah Wolfson, LLC., and McFadden Group, LLC, 45,000
            shares each of the Company's common stock. As per the consulting
            agreements after 90 days 22,500 shares will be issued and after 180
            days another 22,500 shares of the Company's common stock will be
            issued to Leeward Consulting Group, LLC., David Michael, LLC.,
            Hannah Wolfson, LLC., and McFadden Group, LLC. As of July 31, 2003
            the remaining 22,500 shares have not been issued.

            On January 22, 2003, Conolog Corporation and Mr. Andrew Cohen
            entered into a consulting agreement for the purpose of Investor and
            Public Relations Services beginning January 24, 2003 and ending
            April 30, 2003. Mr. Andrew Cohen received a total of 25,000
            (TWENTY-FIVE THOUSAND) shares of Conolog Corporation common stock,
            which are not registered under the Securities Act of 1933, as
            amended. This contract expired on April 30, 2003.

            On January 22, 2003, Conolog Corporation and Mr. Henry Hackle
            entered into a consulting agreement for the purpose of Investor and
            Public Relations Services beginning January 24, 2003 and ending
            April 30, 2003. Mr. Henry Hackle received a total of 25,000
            (TWENTY-FIVE THOUSAND) shares of Conolog Corporation common stock,
            which are not registered under the Securities Act of 1933, as
            amended. This contract expired on April 30, 2003.

            On January 22, 2003, Conolog Corporation and Mr. Jeffrey Firestone
            entered into a consulting agreement for the purpose of Marketing and
            Public Relations Services beginning February 1, 2003 and ending
            April 30, 2003. Mr. Jeffrey Firestone received a total of 80,000
            (EIGHTY THOUSAND) shares of Conolog Corporation common stock, which
            are not registered under the Securities Act of 1933, as amended.
            This contract expired on April 30, 2003.

            On January 23, 2003, Conolog Corporation and Mr. Geoffrey Eiten,
            President of National Financial Communications Corp. entered into a
            consulting agreement for the purpose of Public and Investor
            Relations Services by National Financial to the Company beginning
            January 24, 2003 and ending January 31, 2004. National Financial
            Communications Corp. received a total of 30,000 (THIRTY THOUSAND)
            shares of Conolog Corporation common stock, which are not registered
            under the Securities Act of 1933, as amended. This contract is due
            to expire on January 31, 2004.

            Consulting expense is recorded at the fair market value at the date
            of grant and is amortized over the life of the contracts. Consulting
            expense for the years ended July 31, 2003 and 2002 amounted to
            $342,250 and $373,786, respectively.

      Employees

            During the years ended July 31, 2003 and 2002 the Company issued
            616,300 and 75,900 shares of the Company's common stock,
            respectively, as additional remuneration to certain employees for
            past and future services. Stock Compensation expense was recorded at
            the fair value of the stock at the time of issuance and amounted to
            $665,347 and $404,234, respectively. At July 31, 2003, $222,212 was
            recorded as deferred compensation for future services to be
            provided.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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


                                      F-20
<PAGE>

      Limitations

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


                                      F-21
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

REPORTABLE SEGMENTS

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

<TABLE>
<CAPTION>
                                                   Electronic            Engineering &
                                                 Engineering and          Technical
                                                  Manufacturing            Staffing
                                                ------------------     ----------------

                                                       Year Ended July 31, 2003
                                                ----------------------------------------
<S>                                             <C>                       <C>
                  Sales                         $      604,265            $     783,195
                  Net (loss)                    $   (1,247,844)           $    (128,739)
                  Assets                        $    2,841,675            $     213,710

<CAPTION>
                                                         Year Ended July 31, 2002
                                                  ---------------------------------------
<S>                                             <C>                       <C>
                  Sales                         $      814,687            $     873,326
                  Net (loss) income             $   (3,135,488)           $      32,078
                  Assets                        $    3,323,079                  208,590
</TABLE>

DISPOSITION OF SUBSIDIARY

      On October 22, 2002 Conolog entered an agreement to rescind the Asset
      Purchase Agreement between Conolog and Independent Computer Maintenance
      Corporation. Under the rescission agreement, Conolog and ICM agreed to
      transfer all assets previously purchased pursuant to the Asset Purchase
      Agreement to the extent they still exist to Natony Corp. the former
      seller. The return of purchase price paid for the assets was $600,000,
      $300,000 in cash, at closing, a note receivable for $150,000 which will be
      paid over 24 months in equal monthly installments of $6,750 including
      interest of 5% per month beginning December 2002 (balance due at July 31,
      2003 is $102,471). The note is secured by a first mortgage on a
      condominium owned by the purchaser. The other note receivable is for
      $142,340 ($150,000 less fees of $7,660) unsecured and payable over 10
      years beginning December 2004 bearing an interest rate of 5%.


                                      F-22
<PAGE>

                      Conolog Corporation and Subsidiaries
          Notes to the Consolidated Financial Statements - (Continued)

RESTATEMENT OF PRIOR PERIOD RESULTS

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

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

       Retained (Deficit)                    $  (17,880,488)    $  (17,512,666)
       Net Loss                                  (3,452,716)        (3,084,894)
       Total Assets                               3,163,847          3,531,669
       Loss Per Share - Basic                         (9.10)             (8.13)
       Loss Per Share - Assuming Dilution             (9.10)             (8.13)


                                      F-23