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, 2001 (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
Redeemable Class A Warrants                       NASDAQ SmallCap Market

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

      Yes __X__      No _____

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-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 $1.37 on October 24, 2001 was
$4,081,944.

The number of shares outstanding of the Registrant's common stock outstanding as
of October 24, 2001 was 2,979,521.

<PAGE>


DOCUMENTS INCORPORATED BY REFERENCE FORM 10-KSB
JULY 31, 2001

TABLE OF CONTENTS

PART I

Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . .  3

Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Item 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 16

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . 17

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . 17

Item 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . 18

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
        AND FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . . 19

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . 21

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . 21

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . 21

Item 11. EXECUTIVE COMPENSATION, PROMOTERS AND CONTROL PERSONS:
         COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT. . . . . . 23

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 26

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . 26

PART IV

Item 14. EXHIBITS AND REPORTS. . . . . . . . . . . . . . . . . . . . . 27

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30


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PART I

BUSINESS

General

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

     In September 1998, Conolog entered the temporary staffing industry with its
acquisition of Atlas Design, a human resource company. Atlas Design provides
short and long-term qualified engineering and technical staff to major companies
as well as human resource consulting. The Company plans to utilize the qualified
engineering and technical staff in support of Conolog's longer-term contracts
including the PTR1500 series.

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

History

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

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


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<PAGE>


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

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

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

     During 1987, the Company made the strategic decision to redirect the
Company's focus from military to commercial markets. Since that time, the
Company has refocused on manufacturing and marketing its products for the
commercial marketplace rather than depend on the military and defense-related
markets. The effort has included the introduction of new products, the redesign
of existing products and increased advertising and marketing efforts, as
permitted by its limited financial resources. The decision to embark on this
program entailed a major design effort, including the coordination of outside
engineering consultants to develop a complete line of products aimed at the
Company's target markets. The primary emphasis was on products for electric
utilities, co-generation of power, gas and water companies, traffic control for
departments of transport (DOT) and airports utilizing DSP (Digital Signal
Processing) technology.

     Testing of the Company's first commercial product group, the Teleprotection
Series PTR-1000, was under way in the latter part of 1992 by Bonneville Power
Administration. This detailed test permitted the Company to "fine tune" the
product for power transmission applications. In March 1994, the PTR-1000 was
approved for use by Bonneville and thereafter by other utilities and
municipalities.

     Following the PTR-1000, in 1993, the Company introduced its "98 Series"
Tone Products for water, gas, telephone and oil companies, waste water, traffic
control and airports. In 1994 the Company unveiled the Power Supply Series
(allowing the various utilities to power-up the equipment from any power
source), the "40 Series" for transmission of analog variable data (water levels,
gas pressures and temperature) and the Multiplexer Series, which permits the
transmission of up to 900 separate data points, again using a telephone line,
microwave link, or satellite. In 1994 the Company also introduced the "68
Series" tone products. This series is


                                       4
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the "98 Series" repackaged mechanically specifically for customers with older
systems wanting to upgrade to DSP technology without the expense of a complete
mechanical installation. The "68 Series" offers the entire line offered by the
"98 Series". In 1995, the Company introduced a stand-alone "98 Series"
transmitter and receiver for field installations and a wide range fiber optic
interface for the Iniven products. The fiber optic interface is also available
as a stand-alone coupling device. The Company launched its industrial grade 1200
Baud Modem for data transmission/ communication, and completed the PTR-1000
Systems options. Throughout 1997 and 1998, the Company designed and is in the
process of completing and building the PTR-1500 Quad System, Protection
Equipment, exclusively for the General Electric Company ("GE"), to be labeled
GE-NS50 Series, for worldwide sales as detailed in the agreement between GE and
Conolog dated April 1, 1997.

     In February 1999, the Company completed field testing of our PTR-1500 and
introduced the unit to US and Canadian utilities. In March 1999, GE advised the
Company that it sold its Power Line Business to the Trench Group of Canada,
which has been in negotiations with us to enter into a potential purchase and
sales agreement. We have received an initial $200,000 order for PTR-1500 units
from Boston Edison Energy Company.

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

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

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

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

     In October 2001, the Company designed and is in the process of completing
and building the PDR 2000 eight channel system, Digital Protection Equipment for
power transmission applications, to be introduced by December 2001.


                                       5
<PAGE>


General Description

Products

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

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


                                       6
<PAGE>


Present Status/Business Product Description

     The Company is presently engaged in four basic market segments:

          (A)  Electronic Engineering and Manufacturing

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

               -    Direct sales to end users

               -    Sales to system assemblers

               -    Sales to contractors/installers

               -    Military Sales

               -    Direct contract sales to the military

               -    As subcontractor to systems producers

               -    Foreign governments

               -    Commercial Sales - As Manufacturing Subcontractor to Systems
                    Producers.

          (B)  Other Ventures

               -    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")

               -    Computer system and network consulting services (Under the
                    trade name Independent Computer Maintenance Corporation")

(A)  Electronic Engineering and Manufacturing

     Military Sales

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

     Military sales are primarily for the Company's electromagnetic wave filters
     used in military radios, vehicles (cars, trucks or tanks), portable
     (backpack), special signaling equipment and exchanges (as in field command
     posts), weapon/missile guidance and control (Patriot missile, Tomahawk,
     Pave-Paws), torpedo active signal recognition and differentiation mounted
     in the nose cone of the torpedo (MK-30, Captor, MK-50 torpedoes), ship to
     ship teletype signaling filters used in deployment of ships (UCC-1 and
     UCC-4 systems) as well as many other signaling applications where accurate
     electromagnetic frequency control is required.

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


                                       7
<PAGE>


     Commercial "INIVEN" Sales and Products

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

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

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

          (3)  Multiplex Supervisory Control System

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

(1)  PTR Teleprotection Series

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

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

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

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

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

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


                                       8
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     The PTR-1000 target market is worldwide, as follows:

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

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

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

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

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

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

(2)  Audio Tone and Telemetry Equipment

     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.


                                       9
<PAGE>


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

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

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

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

GEN-1 and GEN-1 Programmable Series

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

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

     Sales for this line are primarily for the replacement of existing
installations and for expansion of these installations where it would not be
economical to install the latest technology, which would not be mechanically
compatible. Sales to this market are made in the same manner as the PTR-1000
market except that manufacturers' representatives specialize in selling to this
diverse market.

"98," "68" and "40" Series

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


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

     Sales of these products are made by the same agents who sell the Company's
GEN-1 products, but are also directed to encompass more sophisticated users with
larger amounts of data and control points. The mechanical configuration of the
"98" series is more compact, permitting more equipment in a given space, while
performing many more functions when it is connected to the "40" Series. The "68"
Series is the "98" Series repackaged mechanically specifically for customers
with older systems permitting them to upgrade their systems to DSP technology.
The "40" Series, when connected to the "98" or "68" in the same chassis, permits
the continuous monitoring of variable data. Typical applications for these
products include transmission of the variable data (such as volume, temperature,
pressure and moisture) for water, gas, industrial gases, oil, gasoline,
transportation equipment and telephone exchanges, and for use at airports,
tunnels and bridges and for security and electricity systems.

(3)  Multiplex Supervisory (IM) Control System

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

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

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

(4)  Fiber Optic Link and Data Modem

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


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(5)  Commercial Subcontract Manufacturing to Systems Producers

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

Recent Developments

     In August 2000, Conolog acquired substantially all of the operating assets
of Independent Computer Maintenance Corporation, a provider of installation,
maintenance and troubleshooting services for commercial and corporate computer
systems and networks to businesses in the greater New York metropolitan area. As
consideration for the assets, Conolog issued 100,000 shares of its Common Stock,
with additional shares issuable if the price per share of the Common Stock is
less than $2.00 on the first anniversary of the closing. Conolog also paid
$100,000 in cash, and placed approximately $300,000 into escrow to be released
to the seller at a rate of two dollars for every dollar of earnings before
income tax generated by the acquired assets during the first year following the
closing.

     The Company is currently undergoing ISO 9000:2000 certification, funded by
a grant by the State of New Jersey. Completion is anticipated by the end of
December 2001.

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

     In October 2001, the Company designed and is in the process of completing
and building the PDR 2000 eight channel system, Digital Protection Equipment for
power transmission applications, to be introduced by December 2001.

STRATEGY

     The Company's strategy is to exploit new commercial markets by continuing
to develop new products and enhance existing products to improve both its market
share and competitive position. Growth in commercial sales is expected to come
through internal growth of existing products, new product introductions and the
expansion of regional markets to meet the growing needs of its customers for
more sophisticated and comprehensive products and services. The Company
introduced a fiber optic digitizer during fiscal 1996. The Company believes the
largest growth opportunity remains with the electric utility market, although it
intends to reach other industrial and utility markets such as railroad and waste
water, respectively. The Company began an advertisement program during 1996 and
devoted substantial resources as available for promotion. The Company intends to
participate in various trade shows, such as the Utilities Communications Council
and IEEE/PES during the forthcoming year.

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


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MARKETING AND SALES

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

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

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

Competition

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

Largest Customers

     Sales to the Company's major customers during fiscal 2001 (Pearson
Education, Schering-Plough, and Superior Bank) totaled $1,231,840 (27% of all
sales). Sales to the Company's major customers during fiscal 2000
(Schering-Plough, Superior Bank, and Degussa Corporation) totaled $1,353,521
(24% of all sales). None of these customers has or had any material relationship
other than business with the Company.


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<PAGE>


Raw Materials

Inventory

     The Company believes that it has adequate sources of raw materials
available for use in its business. The Company's products are assembled from a
variety of standard electronic components, such as integrated circuits,
transformers, transistors, passive components ( i.e., resistors, capacitors and
inductors),diodes and assorted hardware such as printed circuit boards,
connectors and faceplates. The Company is not dependent upon any single
supplier. The Company also purchases a number of other electronic components and
sub- assemblies from various suppliers. There has been no material increase in
the cost of most raw materials and the Company has no reason to anticipate any
significant shortage of raw materials in the future. The Company generally is
required to maintain adequate amounts of raw material and parts inventories to
meet delivery requirements of customers and to assure itself of a continuous
availability of these items.

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

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

Manufacturing

     Of the 15,700 square feet that the Company occupies at 5 Columbia Road in
Somerville, NJ, approximately 7000 square feet are dedicated to manufacturing.
The Company assembles, under normal workload conditions, all the product it
sells. To accommodate the peak demands that occur from time to time the Company
has developed a number of subcontractors to assemble boards to the Company's
specifications. All assemblies, however, are inspected and fully tested by the
Company's quality, engineering and testing departments. The Company maintains
test equipment and every product is burned-in (i.e., each product is run at full
power for 48 hours) and tested prior to shipment. This control, together with
design reliability, has permitted the Company to offer a 12-year warranty on all
its commercial products.

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


                                       14
<PAGE>


Warranty and Service

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

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

Research and Development

New Products

     During fiscal 2000-01 the Company invested approximately $25,000 to
complete the accessory modules of the PTR-1500 and extend the range of its
Multiplexer products. During fiscal 1999-2000 the Company invested approximately
$1,705,257 for product development and amortization of product costs. During
fiscal 2000-2001 the Company completed the design of the PDR-2000 8 channel
digital transfer trip communications product. The Company also developed a new
platform for it's GEN1 products allowing for its use by the Canadian utilities.

Patents and Trademarks

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

Governmental Regulation

     The Company's manufacturing facilities, in common with those of industry
generally, are subject to numerous existing and proposed Federal and state
regulations designed to protect the environment, establish occupational safety
and health standards and cover other matters. The Company believes that its
operations are in compliance with existing regulations and does not believe that
such compliance has had or will have any material effect upon its capital
expenditures, earnings or competitive position. With respect to military sales,
the Company is not subject to any special regulations. The products manufactured
are done so in accordance with accepted commercial practices.


                                       15
<PAGE>


Renegotiation

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

     As of July 31, 2001, the Company employed 22 persons on a full-time basis,
including 3 in management, 1 in sales, 2 in clerical, 1 in accounting, 1 in
purchasing, 3 in engineering and 11 in production. The Company has enjoyed good
labor relations. None of the Company's employees are represented by a labor
union or bound by a collective bargaining agreement. The Company has never
suffered a work stoppage. The Company believes its future success will depend,
in part, on its continued ability to recruit and retain highly skilled
management, marketing and technical personnel. The Company employs approximately
125 contract employees.

Item 2. PROPERTIES

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

     The Company currently leases an office at 2810 Morris Avenue, Union, New
Jersey to house its Atlas Design personnel. The annual rent is $9,600 per annum.

     The Company is currently leasing an office at 193 Route 17 Paramus, NJ in
connection with its Professional Graphics Staffing division of Atlas Design. The
rent on the office space is $18,000 for the current year and $18,540 for the
three following years.

     The Company is currently leasing an office at 1037 Route 46 East, Clifton,
New Jersey to house its Independent Computer Maintenance division. The rent on
the office space is $18,000 per annum.

Item 3. LEGAL PROCEEDINGS

Litigation

     In December 1998, the Company was named in two related litigations pending,
one in the United States District Court for the Southern District of New York
and the other in Superior Court of New Jersey. The first of the pending
litigations was commenced in 1993. The litigations relate to a dispute
concerning real property acquired in 1984. While the property is near real
property formerly owned by Conolog, Conolog was not a party to that transaction.
The claim made against Conolog alleges that Conolog contributed to environmental
contamination of the property acquired in 1984. The New York litigation has been
dismissed. The case was settled by the Company's insurance carrier, Chubb Group,
with no loss to the Company, during fiscal year July 2001.


                                       16
<PAGE>


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

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

None.

                                     PART II

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

MARKET PRICE FOR COMMON STOCK AND CLASS A WARRANTS

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

     The following table sets forth, for the periods indicated, the high and low
prices of the Company's Units (which no longer trade), Common Stock and Warrants
traded on the Nasdaq SmallCap Market for 1998, 1999 and the first, second and
third quarters of 2000. As of October 27, 2000, the Company's Common Stock was
held by approximately 840 shareholders of record.

                   Units             Common  Stock           Warrants
1999          High        Low       High       Low        High       Low

First
Quarter       ____       ____       2.75      .8750      .4375      .0625

Second
Quarter       ____       ____      2.375       1.25       .375      .0625

Third
Quarter       ____       ____       1.75       .875      .3125       .125

Fourth
Quarter        ___       ____     1.5625      .6562      .1562       .125


                   Units             Common  Stock           Warrants
2000          High        Low       High       Low        High       Low

First
Quarter       ____       ____     7.0625       .625     1.7188      .0938

Second
Quarter       ____       ____     3.9688       1.75      .8438       .375

Third
Quarter       ____       ____     1.9375        .75      .4062      .1875

Fourth
Quarter       ____       ____       ____       ____       .281       .172


                   Units             Common  Stock           Warrants
2001          High        Low       High       Low        High       Low

First
Quarter       ____       ____      1.187       .437       .375       .125

Second
Quarter       ____       ____      1.562       .562       .170        .11

Third
Quarter       ____       ____       1.33        .63       .110        .05

DIVIDENDS

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


                                       17
<PAGE>


Item 6. SELECTED FINANCIAL DATA

                                                        Year Ended
                                                         July 31,
(in thousands, except                   2001               2000
per share amounts)

Operations Summary:

Net sales and other                 $     6,112          $ 5,758
income

Net income (loss)                    (2,782,451)          (1,884)

Income (loss)
per primary                               (1.24)           (1.11)
share

Balance Sheet
Summary:

   Total assets                     $     5,305          $ 6,657


                                       18
<PAGE>


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

Results of Operations

     In order to summarize the Company's operating results for the past 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.

 Income & Expense Items as                      Income &          Percentage
 a Percentage Of Revenues                    Expense Items     Increase/Decrease
     From Operations
For The Year Ended July 31
          2001                                  2000 to             1999 to
                                                  2001                2000

         100.0%             Sales &               6.4%               223.7%
                            other
                            income

          69.23             Cost of               6.59               190.75
                            Revenue

          76.29             Selling,              3.69               141.74
                            general &
                            administrative

           0.0              Interest              0.0                  0.0

         145.52             Total costs          28.54               218.46
                            & expenses

         (45.22)            Income              (29.63)             (205.86)
                            (loss)
                            before

           0.0              Income                0.0                  0.0
                            taxes
                            (credits)

         (45.52%)           Loss before         (47.71%)            (180.62%)
                            extraordinary
                            item

*    Includes write-offs for obsolete or excess inventory which were $153,321
     and $375,099 in 2001 and 2000 respectively.

Results of Operations

2001 Compared to 2000

     Total revenue increased 8.36% or $469,186 from $5,611,132 to $6,080,318 in
2001. The increase was attributable primarily to the expansion of PTS and ICM.

     Gross Margins for the years ended July 31, 2001 and 2000 totaled $1,870,608
and $1,661,624 representing 30.8% and 29.6% of revenues.

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

     The Company did not have any interest expense for fiscal year 2001 and
2000.

     As a result of the foregoing, the Company reported a net loss of $2,782,451
or $1.24 per share, compared to a net loss of $1,883,663 or $1.11 per share for
fiscal 2000.


                                       19
<PAGE>


2000 Compared to 1999

     Total revenue increased 224% or $3,102,759 from $2,508,373 to $5,611,132 in
2000. The increase was attributable primarily to the expansion of Atlas Design.

     Gross Margins for the years ended July 31, 2000 and 1999 totaled $1,661,624
and $437,791 representing 29.6% and 17.5% of revenues. Costs of Sales were lower
in 2000 than compared to 1999 due to efficiencies.

     Selling, General and Administrative expenses decreased from $1,052,271 or
42% of sales in 1999 to $1,491,595 or 26% of sales in 2000 as a result in
increased automation.

     The Company did not have any interest expense for fiscal year 2000 compared
to $945 of interest expense in fiscal year 1999.

     As a result of the foregoing, the Company reported a net loss of $1,883,663
or $0.28 per share, compared to a net loss of $1,042,919 or $0.24 per share for
fiscal 1999.

LIQUIDITY AND CAPITAL RESOURCES

     Working capital at July 31, 2001 was $4,479,842 compared to $5,383,454 at
year ended July 31, 2000. The decrease in the working capital is primarily
attributable design and new product development.

     Accounts receivable have deceased from $862,453 at year-end July 31, 2000
to $495,412 at July 31, 2001. This decrease of $367,041 is the result of the
decreased sales during the fourth quarter primarily due to the economy.


     The Company plans 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.


                                       20
<PAGE>


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     None


                                    PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

                                   MANAGEMENT

Directors and Executive Officers

     The following table sets forth certain information regarding the officers
and directors of the Company as of July 31, 2001.

NAME                        AGE                  POSITION

Robert S. Benou             67            Chairman/CEO and Director

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

Arpad J. Havasy             65            Executive Vice President,
                                            Secretary, Treasurer and
                                            Director

Louis S. Massad             64            Director

Edward J. Rielly            34            Director

Thomas Fogg                 66            Vice President-Engineering

     Robert S. Benou has served as President and a Director of the Company from
1968 to 2001 and presently serves as Chairman and Chief Executive Officer. Mr.
Benou is responsible for military products and new military product development.
Mr. Benou is a graduate of Victoria College and holds a BS degree from Kingston
College, England and a BSEE from Newark College of Engineering, in addition to
industrial management courses at Newark College of Engineering. Robert S. Benou
is the father of Marc R. Benou.

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


                                       21
<PAGE>


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

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

     Edward J. Rielly has been a Director of the Company since January 1998. Mr.
Rielly is a Senior Consultant with Esavio Corporation. From February 1998 to
February 2000, Mr. Rielly was an Application Developer with Chubb Corporation.
From 1993 to 1998, Mr. Rielly was an Application Developer with the United
States Golf Association. Mr. Rielly is a graduate of Lehigh University and holds
a BS in Computer Science.

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

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

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


                                       22
<PAGE>


Item 11. EXECUTIVE COMPENSATION

Executive Compensation

     The following table sets forth the cash compensation (consisting entirely
of salary) paid (or accrued for) by the Company to its President, the only
executive officer whose aggregate remuneration exceeded $100,000 in each of the
Company's two fiscal years ended July 31, 2000 and 1999:

                           Summary Compensation Table

                           Annual Compensation         Long Term Compensation

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

Robert         2001        $190,000        0                0         0
Benou,
President      2000        $210,000        0                0         0

               1999        $190,000        0                0         0

----------

Incentive Stock Option Plan

     On May 15, 1995, the Board of Directors of the Company adopted and on
August 14, 1995, the shareholders approved the Conolog Corporation 1995/1996
Stock Option Plan ( the "Option Plan"). The Option Plan is designed to permit
the Company to grant either incentive stock options under Section 422A of the
Internal Revenue Code (the "Code") or nonqualified stock options. Under the
Option Plan, a Stock Option Committee (the "Option Committee") of the Board is
authorized to grant options to purchase up to 200,000 shares of stock to key
employees, officers, directors and consultants of the Company. The Option
Committee administers the Option Plan and designates the optionee's, the type of
options to be granted (i.e., nonqualified or incentive stock options), the
number of shares subject to the options, and the terms and conditions of each
option. The terms and conditions include the exercise price, date of grant, and
date of exercise of each option. An employee may, at the discretion of the
Option Committee, be permitted to exercise an option and make payment by giving
a personal note.


                                       23
<PAGE>


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

     Nonqualified stock options under the Option Plan are generally subject to
the same rules as discussed above. Nonqualified stock options may, however, also
be granted to directors and consultants, whether or not such individuals are
employees of the Company. The exercise price for nonqualified stock options may
not be granted at less than eighty-five percent (85%) of the fair market value
of the shares on the date of grant.


                                       24
<PAGE>


EMPLOYMENT AGREEMENTS

     The Company has entered into a 5-year employment agreement commencing June
1, 1997 and ending May 31, 2002, with Robert Benou. Under his employment
agreement, Mr. Benou will receive an annual base salary of $150,000 for the
first year of employment with an increase of $20,000 beginning November 1997. In
addition, Mr. Benou is entitled to an annual bonus equal to 6% of the Company's
annual "income before income tax provision" as stated in its annual Form 10-K.
The employment agreement also entitles Mr. Benou to the use of an automobile and
to employee benefit plans, such as life, health, pension, profit sharing and
other plans.

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

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

     Mr. Benou is entitled to an annual bonus equal to 3% of the Company's
annual "income before income tax provision" as stated in its annual Form 10-K.
The employment agreement also entitles him to the use of an automobile and to
employee benefit plans, such as life, health, pension, profit sharing and other
plans. Under the employment agreement, employment terminated upon death or
disability of the employee and employee may be terminated by the Company for
cause.

     On March 12, 2000, the Company entered into a five-year employment with
Dina Stellwagen to serve as Corporate Development Manager. Base salary is
$80,000 per annum with annual increases of $4,000.

     The employment agreement also entitles her to the use of an automobile and
to reimburse her for all ordinary and necessary business expenses, eligibility
for all employee benefit plans, such as life, health, pension, profit sharing
and other plans as provided under the agreement, however, the Company is not
obligated to establish or maintain any of the afore mentioned executive plans.
Upon termination without cause, the agreement provides for severance
compensation equal to 2.99 times the average annual compensation.


                                       25
<PAGE>


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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


      Name and                           Amount and
      Address  of                        Nature of
   Beneficial Owner(1)              Beneficial Ownership       % of Ownership

Robert S. Benou                           80,000                    2.7%

Arpad J. Havasy                            7,500                    0.2%

Marc R. Benou                             21,750                    0.7%

Louis Massad                               5,375                    0.2%

Thomas Fogg                                7,500                    0.2%

Edward J. Rielly                             0                      0.0%

All Executive Officers
and Directors as a Group
(6 Persons)                              122,125                    4.0%

     The shares listed above reflect the 1 for 4 reverse split effected by the
Company in April 2001.

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

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

NONE

FORWARD LOOKING STATEMENTS

     The foregoing contains certain forward-looking statements. Due to the
uncertainties associated with doing business with governmental entities and the
release of backlog orders and competition in a business characterized by rapid
technologic changes and advances, actual results may differ materially from any
such forward looking statements.


                                       26
<PAGE>

                                     PART IV

Item 14. EXHIBITS AND REPORTS ON FORM 8-K

(a)Financial Statements

Balance Sheets as of July 31, 2000 and 1999                      F-2-3

Statements of Operations for the years ended
   July 31, 2000 and 1999                                        F-4

Statements of Stockholders' Equity for the years
   ended July 31, 2000 and 1999                                  F-5

Statements of Cash Flows for the years ended July 31, 2000 and
   1999                                                          F-6-7

Notes to Financial Statements                                    F-8 to-18





Index of Exhibits

Exhibit No.         Description of Exhibit

1(a)#               Form of Underwriting Agreement

1(b)#               Form of Selected Dealer Agreement

1(c)#               Form of Agreement Among Underwriters

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

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

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

3(d)                Certificate of Ownership and Merger with respect to the
                    merger of Data Sciences (Maryland) into the Registrant and
                    the change of Registrant's name from "Data Sciences
                    Incorporated" to "DSI Systems, Inc." - incorporated by
                    reference to Exhibit 3.03(a)to the Registrant's Registration
                    Statement on Form S-1 (File No. 2-31302).


                                       27
<PAGE>

3(e)                Certificate of the Designation, Preferences and Relative,
                    Participating, Option or Other Special Rights and
                    Qualifications, Limitations or Restrictions thereof of the
                    Series A Preferred Stock (par value $.50) of DSI Systems,
                    Inc. - incorporated by reference to Exhibit 3.04 to the
                    Registrant's Registration Statement on Form S-1 (File No.
                    2-31302).

3(f)                Certificate of the Designation, Preferences and Relative,
                    Participating, Option or Other Special Rights and
                    Qualifications, Limitations or Restrictions thereof of the
                    Series B Preferred Stock (par value $.50) of DSI Systems,
                    Inc. - incorporated by reference to Exhibit 1 to the
                    Registrant's Current Report on Form 8-K for November 1972.

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

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

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

 (b)#               Specimen Certificate for Class A Warrant

 (c)#               Form of Warrant Agreement

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

 (e)#               Form of Financial Consulting Agreement

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

10.2#               Conolog Corporation 1995/1996 Stock Option Plan.

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

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

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



                                       28
<PAGE>

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

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

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

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

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

----------
#    Incorporated by reference to Registrant's Annual Report on Form 10-K for
     the year ended July 31, 1999, as filed on October 28, 1999.

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

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

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

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

(b) Reports on Form 8-K

     None


                                       29
<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
                                           ---------------------------------
October 26, 2001                           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.

October 26,2001
                                    /s/Robert S. Benou
                              ---------------------------------
                              Chairman, Chief Executive Officer

October 26, 2001                    /s/Arpad J. Havasy
                              ---------------------------------
                              Executive Vice President, Secretary,
                                    Treasurer and Director

October 26, 2001                      /s/Marc R. Benou
                              ---------------------------------
                              President, Assistant Secretary and
                                         Director

October 26, 2001                     /s/Louis S. Massad
                              ---------------------------------
                                          Director

October 26, 2001                     /s/Edward J. Rielly
                              ---------------------------------
                                          Director



                                       30
<PAGE>


                      Conolog Corporation and Subsidiaries

                        Consolidated Financial Statements

                                  July 31, 2001










<PAGE>







                           Annual Report on Form 10-K

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

                        Consolidated Financial Statements

                            Year Ended July 31, 2001



                      Conolog Corporation and Subsidiaries

                             Somerville, New Jersey









<PAGE>




                       Form 10-K - Item 14 (a) (1) and (2)
                 Index to the Consolidated Financial Statements
                      Conolog Corporation and Subsidiaries
                                  July 31, 2001


                                                                        Page

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

     Independent Auditors' Report...................................  F-1
     Consolidated Balance Sheet - July 31, 2001 ....................  F-2 - F-3

     Consolidated Statements of Operations -
         Years Ended July 31, 2001 and 2000.........................  F-4

     Consolidated Statements of Stockholders' Equity (Deficiency) -
         Years Ended July 31, 2001 and 2000 ........................  F-5

     Consolidated Statements of Cash Flows -
         Years Ended July 31, 2001 and 2000.........................  F-6 - F-7

     Notes to the Consolidated Financial Statements.................  F-8 - F-18




<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 Subsidiary as of July 31, 2001 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended July 31, 2001 and 2000. 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, 2001, and the results of its operations and its
cash flows for the years ended July 31, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.



Bridgewater, New Jersey
October 17, 2001


                                      F-1
<PAGE>

                      Conolog Corporation and Subsidiaries
                           Consolidated Balance Sheet
                                  July 31, 2001



      Assets

Current Assets
   Cash and equivalents                                               $  666,489
   Accounts receivable - less allowances of $20,925                      495,412
   Employee notes receivable - less allowances of $236,587                50,339
   Deferred tax asset                                                    161,460
   Inventories
      Finished goods                                                   1,082,477
      Work-in-process                                                    206,798
      Materials and supplies                                           1,468,891
                                                                       4,131,866
   Other current assets                                                   57,908

        Total Current Assets                                           4,189,774

Property, Plant and Equipment
   Machinery and equipment                                             1,337,458
   Furniture and fixtures                                                476,088
   Computer software                                                      89,120
   Leasehold improvements                                                 30,265

                                                                       1,932,931

   Less accumulated depreciation and amortization                      1,702,192

                                                                         230,739

Goodwill, net of accumulated amortization of $25,925                     877,916
Other assets                                                               7,516


        Total Assets                                                  $5,305,945
                                                                      ==========



See notes to the consolidated financial statements.


                                      F-2
<PAGE>



                      Conolog Corporation and Subsidiaries
                           Consolidated Balance Sheet
                                  July 31, 2001


<TABLE>
<S>                                                                          <C>
      Liabilities and Stockholders' Equity
Current Liabilities
   Accounts payable                                                          $    118,087
   Accrued expenses                                                               179,246
   Accrued legal fees                                                             127,000
   Settlement payable                                                             325,000
   Deferred revenue                                                                29,500
   Accrued payroll                                                                 12,187
   Deferred gain on sale of assets                                                 10,083

        Total Current Liabilities                                                 801,103

Convertible debenture                                                              25,000

        Total Liabilities                                                         826,103

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 2,871,593 shares, including 2,203
      shares held in Treasury                                                      28,716

   Contributed Capital                                                         19,234,345

    (Deficit)                                                                 (14,423,592)

   Treasury Shares at Cost                                                       (131,734)
   Subscription receivable                                                        (93,750)
   Prepaid consultant services                                                   (212,240)
      Total Stockholders' Equity                                                4,479,842

        Total Liabilities and Stockholders' Equity                           $  5,305,945
                                                                             ============
</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,
                                                                               2001                2000
<S>                                                                        <C>                 <C>
Service revenue                                                            $ 4,398,838         $ 4,373,121
Product revenue                                                              1,681,480           1,238,011
      Total Revenue                                                          6,080,318           5,611,132


Costs of service revenue                                                     3,409,488           3,515,711
Costs of product revenue                                                       800,222             433,797
      Total Cost of Revenue                                                  4,209,710           3,949,508

Gross Profit                                                                 1,870,608           1,661,624

Selling, general and administrative                                          1,546,663           1,491,595

      Income From Operations                                                   323,945             170,029

Other Income (Expense)
   Interest income                                                              31,675              86,784
   Lawsuit settlement charges                                                 (325,000)                 --
   Reserve for employee notes receivable - stock options                      (236,587)                 --
   Gain on sale of assets                                                           --              60,500
   Write-off of obsolete or excess inventories                                (153,328)           (375,099)
   Capital raising activities                                                       --            (360,400)
   Employee bonus                                                             (289,556)           (371,280)

   Marketing, product development and amortization of product costs         (1,730,257)         (1,015,322)

   Legal fees                                                                 (403,343)           (341,677)

      Total Other Income (Expense)                                          (3,106,396)         (2,316,494)

Loss Before Income Taxes                                                    (2,782,451)         (2,146,465)

(Benefit from) Income Taxes                                                         --            (262,802)

Net Loss                                                                   $(2,782,451)        $(1,883,663)

Loss Per Common Share  - Basic                                             $     (1.24)        $     (1.11)
Loss Per Common Share -  Assuming Dilution                                 $     (1.24)        $     (1.11)
</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, 1999                        $77,500        $597        $ 59,130         $ 15,973,954         $ (9,749,118)
Debt to equity conversion                            --          --          17,000            1,683,000                   --
Additional shares issued to employees                --          --           6,160              411,359                   --
Additional shares issued to consultants              --          --           7,500              502,500                   --
Shares issued for services to be
provided                                             --          --              --                   --                   --
Additional shares issued for commissions             --          --             700               46,900                   --
Purchase of treasury stock (at cost)                 --          --              --                   --                   --
Remitted shares due to amended
consulting agreement                                 --          --          (7,572)          (1,060,000)                  --
Sale of treasury stock                               --          --              --               84,496                   --
Additional shares issued for prepaid
acquisition costs                                    --          --           1,270               93,090                   --
Amortization of consultant services                  --          --              --                   --                   --
Net loss for the year                                --          --              --                   --           (1,883,663)
Dividends                                            --          --              --                4,180               (4,180)
Balance at July 31, 2000                         77,500         597          84,188           17,739,479          (11,636,961)
Debt to equity conversion                            --          --             828               74,172                   --
Additional shares issued to employees                --          --           4,784              764,772                   --
Additional shares issued to consultants              --          --           4,135              399,250                   --
Additional shares issued for commissions             --          --             170               22,151                   --
Shares issued for services to be
provided                                             --          --              --                   --                   --
Purchase of treasury stock (at cost)                 --          --              --                   --                   --
Sale of treasury stock                               --          --              --               45,176                   --
Additional shares issued for
acquisition costs                                    --          --           1,210              118,566                   --
Amortization of consultant services                  --          --              --                   --                   --
Net loss for the year                                --          --              --                   --           (2,782,451)
Effect of 1-for-4 reverse stock split                --          --         (66,599)              66,599                   --
Dividends                                            --          --              --                4,180               (4,180)
Balance at July 31, 2001                        $77,500        $597        $ 28,716         $ 19,234,345         $(14,423,592)
                                                =======        ====        ========         ============         ============

<CAPTION>

                                                                                    Consultant           Total
                                                  Treasury       Subscription       Services to       Stockholders'
                                                   Stock          Receivable        be Provided          Equity
<S>                                              <C>               <C>              <C>                 <C>
Balance at July 31, 1999                         $(131,734)        $     --                  --         $ 6,230,329
Debt to equity conversion                               --               --                  --           1,700,000
Additional shares issued to employees                   --               --                  --             417,519
Additional shares issued to consultants                 --               --                  --             510,000
Shares issued for services to be
provided                                                --               --            (426,903)           (426,903)
Additional shares issued for commissions                --               --                  --              47,600
Purchase of treasury stock (at cost)               (11,638)              --                  --             (11,638)
Remitted shares due to amended
consulting agreement                                    --               --                  --          (1,067,572)
Sale of treasury stock                              11,638               --                  --              96,134
Additional shares issued for prepaid
acquisition costs                                       --               --                  --              94,360
Amortization of consultant services                     --               --              32,352              32,352
Net loss for the year                                   --               --          (1,883,663)
Dividends                                               --               --                  --
Balance at July 31, 2000                          (131,734)              --            (394,551)          5,738,518
Debt to equity conversion                               --               --                  --              75,000
Additional shares issued to employees                   --               --                  --             769,556
Additional shares issued to consultants                 --          (93,750)                 --             309,635
Additional shares issued for commissions                --               --                  --              22,321
Shares issued for services to be
provided                                                --               --             (26,000)            (26,000)
Purchase of treasury stock (at cost)              (113,725)              --                  --            (113,725)
Sale of treasury stock                             113,725               --                  --             158,901
Additional shares issued for
acquisition costs                                       --               --                  --             119,776
Amortization of consultant services                     --               --             208,311             208,311
Net loss for the year                                   --               --                              (2,782,451)
Effect of 1-for-4 reverse stock split                   --               --                                      --
Dividends                                               --               --                                      --
Balance at July 31, 2001                         $(131,734)        $(93,750)        $  (212,240)        $ 4,479,842
                                                 =========         ========         ===========         ===========
</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,
                                                              2001                2000
<S>                                                       <C>                 <C>
Cash Flows From Operating Activities
    Net Loss                                              $(2,782,451)        $(1,883,663)
    Adjustments to Reconcile Net Loss to Net Cash
      Used in Operating Activities
    Common stock for commissions                               22,321              47,600
    Common stock base compensation                            289,556             371,280
    Common stock for consulting fees                          283,635             510,000
    Amortization of prepaid consulting expense                208,311                  --
    Depreciation and amortization                              70,265              49,928
    Bad debt expense                                          251,512                  --
    Deferred income taxes                                     101,540            (263,000)
(Increase) Decrease in Operating Assets
    Accounts receivable                                       352,116            (510,572)
    Inventories                                               158,417             277,132
    Other current assets                                       63,351              (4,639)
    Other assets                                                2,567              69,575
Increase (Decrease) in Operating Liabilities
    Accounts payable                                           49,039              19,445
    Settlement payable                                        325,000                  --
    Accrued expenses and other liabilities                    (65,492)            174,517
    Deferred revenue                                           29,500                  --
    Deferred gain on sale of assets                           (60,500)            (60,500)
      Net Cash Used in Operating Activities                  (701,313)         (1,202,897)

Cash Flows From Investing Activities
  Purchase of equipment and leasehold improvements           (121,010)            (70,890)
  Purchase of goodwill                                       (146,469)                 --
  Deposit on asset purchase                                        --            (400,000)
      Net Cash Used in Investing Activities                  (267,479)           (470,890)

Cash Flows From Financing Activities
  Proceeds from sale of treasury stock                        158,901              96,100
  Purchase of treasury stock                                 (113,725)            (11,604)
  Proceeds from issuance of stock options                     193,074              43,750
  Proceeds from issuance of convertible debentures            100,000           1,700,000
      Net Cash Provided by Financing Activities               338,250           1,828,246
 Net (Decrease) Increase in Cash and Equivalents             (630,542)            154,459
Cash and Equivalents at Beginning of Period                 1,297,031           1,142,572
Cash and Equivalents at End of Period                     $   666,489         $ 1,297,031
                                                          ===========         ===========
</TABLE>


See notes to the consolidated financial statements.



                                      F-6
<PAGE>

                      Conolog Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows




SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for:

                                                         Year Ended July 31,
                                                          2001         2000
    Taxes                                              $      600   $      200

  Noncash investing and financing activities:
    Conversion of debentures                               75,000    1,700,000
    Common stock issued for consulting services            26,000      426,903
    Common stock issued for subscription receivable        93,750           --
    Common stock issued for goodwill                      119,776           --
    Deposit on asset purchase for goodwill                494,360           --





See notes to the consolidated financial statements.


                                      F-7
<PAGE>

                      Conolog Corporation and Subsidiaries
                 Notes to the Consolidated Financial Statements


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Nature of Organization

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

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

          During the year ended July 31, 2001, the Company formed a wholly owned
          Subsidiary, Lonogoc Corporation. In August, 2000, Lonogoc Corporation
          purchased the assets of Independent Computer Maintenance Corporation
          ("ICM") and is currently operating under the trade name, ICM. ICM
          provides installation, maintenance, and troubleshooting of computer
          systems and networks.

     Principles of Consolidation

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

     Cash and Equivalents

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

     Inventories

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

     Property, Plant and Equipment

          Property, plant and equipment are carried at cost, less allowances for
          depreciation and amortization. Depreciation and amortization are
          computed by the straight-line method over the estimated useful lives
          of the assets. Depreciation and amortization was $53,977 and $57,037
          for the years ended July 31, 2001 and 2000, respectively.

     Revenue Recognition

         Revenue for product sales are recognized at the time of shipment
         provided that collection of the resulting receivable is probable.
         Service revenue is generally recognized ratably over the period of the
         related contract.


                                      F-8
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

     Goodwill

          Goodwill represents the excess of the purchase price over the fair
          market value of their assets acquired by Nologoc Corporation and
          Lonogoc Corporation at the date of acquisition and it is being
          amortized on the straight line method over 40 years. The carrying
          value is reviewed if the facts and circumstances, such as significant
          declines in sales, earnings or cash flows or material adverse changes
          in the business climate, suggest that it may be impaired. If this
          review indicates that goodwill will not be recoverable, as determined
          based on the estimated undiscounted cash flows of the assets acquired,
          impairment is measured by comparing the carrying value of goodwill to
          fair value. Fair value is determined based on quoted market values,
          discounted cash flows or appraisals. Amortization expense charged to
          operations for July 31, 2001 and 2000 was $20,102 and $3,576,
          respectively.

     Advertising Costs

          Advertising costs are charged to operations when incurred. Advertising
          expense was $50,844 and $23,679 for the years ended July 31, 2001 and
          2000, respectively.

     Securities Issued for Services

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

     Income Taxes

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

      Loss Per Share of Common Stock

          Loss per share of common stock is computed by dividing net loss (after
          dividends on preferred shares) by the weighted average number of
          shares of Common Stock outstanding during the year. The number of
          shares used in the computations were 2,242,851 and 1,706,445 for 2001
          and 2000, respectively. The effect of assuming the exchange of the
          warrants, Series A Preferred Stock and Series B Preferred Stock in
          2001 and 2000 would be anti-dilutive.

     Use of Estimates

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

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

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

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


                                      F-9
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


LEASES

     The Company leases their facilities and various equipment under operating
     leases. Equipment leases expired during fiscal year ended July 31, 2001.

     Total rental expense for all operating leases of the Company amounted to
     approximately $60,312 and $92,922 during the years ended July 31, 2001 and
     2000, respectively.

     The following is a schedule of future minimum rental payments (exclusive of
     common area charges) required under operating leases that have initial or
     remaining non-cancelable lease terms in excess of one year as of July 31,
     2001.

         Year Ending July 31,
         --------------------
              2002                                           $         45,975
              2003                                                     31,845
              Total minimum payments required                $         77,820



INCOME TAXES

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


                                                       July 31,
                                                   2001         2000

         Current Income Taxes
              Federal                           $      --   $        --
              State                                    --            --

         Deferred Income Taxes                         --
              Federal                                  --            --
              State                                    --      (262,802)

                                                $      --    $ (262,802)
                                                =========    ==========

     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, 2000, the Company entered into an agreement under which
     it sold a portion of its NOL carryover. The total proceeds of this
     transaction was recorded as a benefit in the accompanying financial
     statements.




                                      F-10
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


INCOME TAXES, Continued

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


                                                             July 31,
                                                       2001            2000

     Federal statutory tax rate                       (34.0)%         (34.0)%
     Valuation Allowance on Net Operating Loss
          Carryover                                   (34.0)          (21.8)
     Permanent and other differences                     --              --

                                                         --%          (12.2)%
                                                     ======          ======

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

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

     At July 31, 2001, the Company has net operating loss carryforwards for
     federal and state income tax purposes of approximately $7,592,115 and
     $3,586,754, respectively, which are available to offset future Federal and
     State taxable income, if any. The federal and state net operating loss
     carryforwards expire as follows:

                                         Federal                   State

     2005                              $        --              $  644,713
     2006                                       --                 859,586
     2008                                       --               2,082,455
     2013                                  253,276               2,705,790
     2014                                1,232,010                      --
     2015                                  957,538                      --
     2017                                  550,752                      --
     2018                                1,656,388                      --
     2019                                  859,696                      --
     2020                                2,082,455                      --
     2022                                2,705,790                      --

                                       $10,297,905              $6,292,544
                                       ===========              ==========

     At July 31, 2001 the Company has available unused general business credits
     that may provide future tax benefits and expire as follows:

                                             Amount

                                       $      26,300
                                              64,900
                                       $      91,200



                                      F-11
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


INCOME TAXES, Continued

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

                                                         Federal         State

    Net operating losses and tax credit carryforwards  $ 3,501,000    $  566,000
    Less:  valuation allowance                           3,501,000       404,540
         Net Deferred Tax Assets                       $         0    $  161,460
                                                       ===========    ==========

     The net change in the valuation allowance was $964,733 in 2001 and $767,504
     in 2000.

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.

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

     The total expense for the above plan amounted to $68,907 and $66,830 for
     the years ended July 31, 2001 and 2000, respectively.

CAPITAL STOCK

     On April 17, 2001, the Board of Directors authorized a 1 for 4 reverse
     stock split of the Company's $.01 par value common stock. All references in
     the accompanying financial statements to the number of common shares for
     fiscal year ending July 31, 2001 have been restated to reflect the reverse
     stock split.

     The Series A Preferred Stock provides 4% cumulative dividends, which were
     $99,083 ($0.64 per share) in arrears at July 31, 2001. In addition, each
     share of Series A Preferred Stock may be exchanged for one share of Common
     Stock upon surrender of the Preferred Stock and payment of $1,200 per
     share. The Company may redeem the Series A Preferred Stock at $.50 per
     share plus accrued and unpaid dividends.

     The Series B Preferred Stock provides cumulative dividends of $.90 per
     share which were $32,374 ($27.05 per share) in arrears at July 31, 2001. In
     addition, each five shares of Series B Preferred Stock is convertible into
     1 share of Common Stock. The Company may redeem the Series B Preferred
     Stock at $15 per share plus accrued and unpaid dividends.

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


                                      F-12
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


WARRANTS

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


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


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 Optinee 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 $0.68 per share. The
     Option Agreement provides that the voting power of any conversion shares
     owned by the Optionee will be voted in the same manner as shares voted by
     all other shareholders of the Company. As of July 31, 2001, the Optionee
     purchased $100,000 of the convertible debentures and converted $75,000 of
     them into common stock.

     The Company and CLOG LLC entered into an Option Agreement, dated as of
     December 22, 1998, which was amended and restated as of May 5, 1999 (the
     "Option Agreement"). Pursuant to the Option Agreement, the Company has
     granted an option to CLOG to purchase convertible debentures of the Company
     having a aggregate principal amount of up to $2,000,000. CLOG's option may
     be exercised at any time prior to December 31, 1999.

     As of July 31, 2000, CLOG exercised their option for $2,000,000 convertible
     debentures and converted them to common stock at a conversion rate of $1.00
     per share, the fair market value of the common stock on the date of the
     Option Agreement. The Option Agreement provided that the voting power of
     any conversion shares owned by CLOG will be voted in the same manner as
     shares voted by all other shareholders of the Company.

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

   2001                   --                  --                    --
   2000                 553,194                1                    10



                                      F-13
<PAGE>


                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


COMMITMENTS AND CONTINGENCIES

     Employment Agreements

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

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

          On March 1, 1998, the Company entered into an employment agreement
          with a Company executive to serve as a Corporate Development Manager
          for a period of five years. Base salary under the agreement is $50,000
          per annum with annual increases of $4,000. The agreement calls for the
          Corporate Development Manager to receive a quarterly bonus of 5,000
          shares of Conolog Corporation stock that have not been registered and
          eligible for sale under Rule 144. Eligibility for all general pension,
          profit-sharing, life, medical, disability and other insurance and
          executive benefit plans is provided under the agreement, however, the
          Company is not obligated to establish or maintain any of the
          aforementioned executive plans. The Company will also provide an
          automobile for the use of the Corporate Development Manager and
          reimburse her for all ordinary and necessary business expenses. Upon
          termination without cause, the agreement provides for severance
          compensation equal to 2.99 times the average annual compensation.

     Legal Matters

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

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


                                      F-14
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


COMMITMENTS AND CONTINGENCIES, Continued

     Stock Option Plan

          On December 26, 20001, the Board of Directors of the Company adopted
          the Conolog Corporation 2000/2001 Stock Option Plan (the "Option
          Plan"). The Option Plan is designed to permit the Company to grant
          either incentive stock options under Section 422A of the Internal
          Revenue Code or nonqualified stock options. The maximum number of
          common shares of the Company which may be granted under the plan is
          300,000.

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

          Nonqualified stock options under the Option Plan are generally subject
          to the same rules as discussed above. Nonqualified stock options may,
          however, also be granted to directors and consultants, whether or not
          such individuals are employees of the Company. The exercise price for
          nonqualified stock options may not be granted at less than eighty-five
          percent (85%) of the fair market value of the shares on the date of
          grant.

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

          On February 8, 2000, the Company granted 17,500 options to purchase
          the Company's common stock at $.625 per share. All options granted on
          this date were exercised.

          No stock options were outstanding as of July 31, 2001.


                                      F-15
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


COMMON STOCK ISSUED FOR SERVICES

     Consulting Agreements

          On November 20, 2000, the Company entered into a 90-day agreement with
          World Alliance Consulting, Inc. ("World Alliance"), whereby World
          Alliance would provide public relations and consulting services to the
          Company. In consideration of such services, World Alliance received
          75,000 shares of the Company's common stock. Pursuant to the
          Agreement, World Alliance is to pay the Company $93,750 on November
          29, 2001 in consideration of the excess of the fair market value of
          the shares received over the consulting services provided.

          On June 12, 2001, the Company and Fengshui Consulting, Inc. entered
          into an agreement whereby, Fengshui Consulting, Inc. would provide
          public relations and consulting services to the Company through April
          30, 2003. In consideration of such services, Fengshui Consulting, Inc.
          received 20,000 shares of the Company's common stock.

          On October 3, 2000, the Company and Levcap Communications entered into
          a 90 day agreement whereby, Levcap Communications would provide public
          relations and consulting services to the Company. In consideration of
          such services, Levcap Communications received 4,375 shares of the
          Company's common stock.

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

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

          In May of 2000, the Company entered into a consulting agreement with a
          former employee, whereby, the former employee would act as consultant
          to the Company. In consideration of such services, the former employee
          was granted 2,500 shares of the common stock of the Company. The
          agreement terminated October 31, 2000.

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

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


                                      F-16
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


COMMON STOCK ISSUED FOR SERVICES, Continued

          During the year ended July 31, 2000 the Company received consulting
          services from European Investor Relations Limited. In consideration
          for such services the Company granted 25,000 shares of the common
          stock of the Company to European Investor Relations Limited.

          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, 2001 and 2000 amounted to
          approximately $491,946 and $540,868, respectively.

     Commission Agreement

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

     Employees

          During the year the Company issued 163,500 shares of the Company's
          common stock, as additional remuneration to certain employees.
          Compensation expense was recorded at the average fair value of the
          stock at the time of issuance, $271,410 ($1.40 per share).

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

     Limitations

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

RECLASSIFICATION

     Certain items in the prior years report have been reclassified to conform
     to current year classifications. Such reclassifications had no effect on
     previously reported net income.


                                      F-17
<PAGE>

                               Conolog Corporation
                 Notes to the Consolidated Financial Statements


REPORTABLE SEGMENTS

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

                          Electronic           Engineering &     Computer System
                        Engineering and          Technical         and Network
                         Manufacturing           Staffing           Consulting
                       ---------------------------------------------------------
                                        Year Ended July 31, 2001

    Sales                $      695,823       $    4,398,838      $      985,657
    Net (loss) income        (3,122,598)             393,269              23,539
    Assets                    4,602,778              452,132             200,696

                       ---------------------------------------------------------
                                        Year Ended July 31, 2000

    Sales                $    1,238,011       $    4,373,121      $           --
    Net loss                 (1,836,241)             (47,422)                 --
    Assets                    5,705,361              951,264                  --


SUBSEQUENT EVENT

     Subsequent to year end the company issued convertible debentures for
     $290,000. The principal plus interest at 8%, per annum, mature on October
     11, 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 fully paid and nonassessable shares of common stock, obtained by
     dividing the principal amount of the debenture or portion thereof
     surrendered for conversion by the conversion price between $.50 and $.60
     per share.

     At maturity, the company has the option to repay the debenture, together
     with all accrued interest thereon, by issuing a new Series C Preferred
     Stock. For purposes of such repayment, the shares of Preferred Stock shall
     be valued at $5.00 per share. The shares of Preferred Stock will be
     non-voting and will carry a cumulative dividend of 8% per annum, which may
     be payable by issuance of additional shares of Series C Preferred Stock
     valued at $5.00 per share.

     The Preferred Stock will be convertible into Common Stock of the Company at
     the rate of one share of Common Stock for each share of Preferred Stock.
     The Preferred Stock will carry a liquidating preference of $5.00 per share.




                                      F-18