UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-KSB/A



[AMENDMENT]





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



|For
        the fiscal year ended July 31, 2005
|-----------------------------------------------



|£ | Transition
        Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
        of 1934 for the transition period from    to
|- | ---------------------------------------------------------------------------------------------------------------------------------------------





Commission File Number: 0-8174



CONOLOG CORPORATION

(Exact
  name of registrant as specified in its charter)

DELAWARE
      22-1847286(State or other jurisdiction of
          incorporation or organization)
      (IRS Employer
          Identification No.)5 Columbia Road, Somerville, NJ
      08876(Address of principal executive office)
      (Zip code)Issuers telephone
          number, including area code:
          (908) 722-8081Securities 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 Capital Markets                           



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.

| | YesSNo£ | 
| | ------- | 



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.o

The aggregate market value of the voting stock held by non-affiliates of the Registrant based on the closing sale price of $1.51 on October 17, 2005 was $11,208,949.

The number of shares outstanding of the Registrants common stock outstanding, excluding treasury shares, as of October 17, 2005 was 7,417,847.





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TABLE OF CONTENTS



PART I



|Item 1. Description of Business | 1
|------------------------------- | -



|Item 2. DESCRIPTION OF PROPERTY | 10
|------------------------------- | --



|Item 3. LEGAL PROCEEDINGS | 10
|------------------------- | --



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



PART II



|Item
        5 MARKET FOR REGISTRANTS COMMON EQUITY AND
        RELATED STOCKHOLDER MATTERS | 12
|-------------------------------------------------------------------------------------------- | --



|Item
        6. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF
        OPERATIONS AND FINANCIAL CONDITION | 13
|------------------------------------------------------------------------------------------------------------- | --



|Item
        7. FINANCIAL STATEMENTS.                                                                                           | 18
|------------------------------------------------------------------------------------------------------------------------------- | --
|                                                                                                                                |   
|Item 8. CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 
      ACCOUNTING AND FINANCIAL DISCLOSURE                       | 18
|                                                                                                                                |   
|Item 8A. CONTROLS
      AND PROCEDURES                                                                                          | 19
|                                                                                                                                |   
|PART III                                                                                                                        |   
|                                                                                                                                |   
|Item 9. DIRECTORS,
      EXECUTIVE OFFICERS                                                                                     | 20
|                                                                                                                                |   
|Item 10. EXECUTIVE
      COMPENSATION, PROMOTERS AND CONTROL PERSONS: 
      COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT | 21
|                                                                                                                                |   
|Item 11. SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
      MANAGEMENT                                            | 23
|                                                                                                                                |   
|Item 12. CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS                                                                   | 23
|                                                                                                                                |   
|Item 13. EXHIBITS                                                                                                               | 24
|                                                                                                                                |   
|Item 14. PRINCIPAL
      ACCOUNTANT FEES AND
      SERVICES                                                                     | 26
|                                                                                                                                |   
|SIGNATURES                                                                                                                      | 27





---







FORWARD LOOKING STATEMENTS

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



Amendment

This
  amendment is being filed to (i) revise and expand the General and Administrative
  section of Managements Discussion and Analysis of Operation and (ii) reclassify
  the amount of stock based compensation paid to officers, directors, consultants
  and employees to general and administrative costs.



PART
  I



GENERAL INFORMATION



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



Item
  1. BUSINESS DEVELOPMENT AND BUSINESS



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



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



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



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



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





| | 1
| | -



---







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



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



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



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



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



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



In March 2004, we ceased operating our staffing business. The assets of the wholly-owned subsidiary, Nologoc, Inc. trading as Atlas Design, were sold.



Products

We
  are engaged in the design and production 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





| | 2
| | -



---



readout
  or meter, and (vii) multiplexer supervisory controls, which enable callers with
  high volumes of supervisory data to transmit on fewer phone lines.



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



Present
  Status/Business Product Description



We
  are engaged in three basic market segments:



(A) Commercial Sales


(Under the trade name "INIVEN" (a wholly owned

Division
  of Conolog))



-
  Direct sales to end-users



-
  Sales to system assemblers



-
  Sales to contractors/installers



(B)
  Military Sales



-
  Direct contract sales to the military



-
  As subcontractor to systems producers



-
  Foreign governments



(C)
  Commercial Sales



-
  As Manufacturing Subcontractor

to
  Systems Producers.



(A)
  Military Sales



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









| | 3
| | -



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



B)
  Commercial "INIVEN" Sales and Products



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





| | (1) | Protective
        Tone Relay (PTR) and Protective Digital Relay (PDR) Teleprotection Series
        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 12 Baud Modems.                                                                                     



| | (1) PDR
        Teleprotection Series
| | -------------------------------------



The
  PDR-2000 is designed as a state of the art digital protection terminal. The
  PDR-2000 operates over 56/64 KBPS channel, G.703 or fiber optics. Combined with
  the hardwire CM-100 the PDR 2000 can operate seamlessly over fiber optics with
  existing substation equipment.



| | (2)
        PTR Teleprotection Series
| | -------------------------------------



This
  product is designed as a dual system for use exclusively by electric power generators
  (electric utilities and co-generators) 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 is installed in pairs, one unit at each end of the line. Each unit
  is connected and in constant communication with the other, as they continuously
  monitor the line for faults. In the event of a fault occurring (such as a downed
  line or a short circuit) at either end, and when confirmed by the receiving
  PTR-1000 unit, the line is immediately isolated for shut down, averting costly
  damage and downtime.



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

(information
  being monitored) at their end of the line.



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



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





| | 4
| | -



---





The
  PDR-2000, PTR-1500 and the PTR-1000 target market is:



New
  installations; i.e., new transmission lines, new distribution segments, for
  utilities and co-generators.



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



Existing
  installations for upgrading to PTR-1500/1000 and PDR-2000 technology, again
  improving efficiency and down time.



Sales
  efforts for the PDR and PTR series 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.
| |                                              | 



(3)
  Audio Tone and Telemetry Equipment



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



These
  applications, by their nature, can be accomplished with slow speed signaling
  systems composed of a transmitter on one end and a receiver on the other to
  carry out the necessary instructions provided by the transmitter. Each set (transmitter/receiver
  combination) is

called
  a channel. Because of the slow speed, up to 30 channels could be made to transmit
  and receive signals, in either direction on a single telephone line, microwave
  link or direct-wired line at the same time. This parallel transmission permits
  each transmitter/receiver pair to be independent of all the others.



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







| | 5
| | -



---





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,  GEN-1 type equipment is used in the United States by a spectrum of users.  Since our line has a distinct mechanical configuration, we designed our GEN-1 Programmable units and other improvements as replacements for existing units.  These account for approximately 12% of the Companys commercial sales. The Companys line of GEN-1 equipment is extensive and provides the user with the ability to perform multiple control functions, status monitoring as well as continuous variable data monitoring, such as a level in a tank or pressure gauge.



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



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



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



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



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







| | 6
| | -



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(4)
  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.



(5)
  Fiber Optic Link and Data Modem



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



OUR STRATEGY



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



MARKETING AND SALES




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

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



COMMERCIAL
  - We market the PTR-1000, PTR-1500, PDR-2000 and all of our INIVEN products
  to utilities by means of our Sales personnel, through independent manufacturers
  representatives, and through distributors, focusing mainly on the largest utilities
  and co-generators. The long sales cycle of our systems is the result of rigorous
  utility testing in addition to many months of field operations in conjunction
  with existing equipment at the utilitys substations. In the United States
  alone there are over 500 large entities generating electricity that are identified
  as investor-owned, municipal systems, cooperative systems and federal, state
  and district systems.

We
  market the Gen-1 and Gen-1 Programmable Series, as well as the 98
  Series, 68 Series and 40 Series, in the same way as
  the PTR-1000 except that the manufacturers



| | 7
| | -



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representatives
  used by the Company specialize in selling to the diverse markets that utilize
  such products.



COMPETITION



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



LARGEST CUSTOMERS



Sales to our major customers during fiscal 2005 (Bonneville Power Authority, U.S. Military) totaled $ 168,150 and $ 174,121, respectively (totaling 30% and 32% of all sales, respectively. Sales to our major customers during fiscal 2004(Bonneville Power, Tucson Power) totaled  $220,124 and $194,560, respectively (totaling 26% and 23% of all sales, respectively).  None of these customers has or had any material relationship other than business with the Company.



INVENTORY

Raw Materials

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



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



MANUFACTURING



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



| | 8
| | -



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product
  is burned-in (i.e., each product is run at full power for 48 hours) and tested
  prior to shipment.



WARRANTY
  AND SERVICE



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



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



RESEARCH AND DEVELOPMENT

New Products



During fiscal 2004-2005, we introduced CM-100, first of its kind, direct substation hardened communication consolidator that fills the existing gap in substation communications. The hardwired CM-100 will allow our existing products, including the PDR-2000, to operate seamlessly over fiber optics together with existing substation equipment. We plan to commerce deliveries of the CM-100 by December 2005.



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



During fiscal 2003-2004 we proceeded with the design and testing of the PDR-2000 8 channel digital transfer trip communications product. During fiscal 2001-2002 we invested approximately $774,757 to complete its design of the PDR-2000, eight-channel digital transfer trip communications product.



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



PATENTS AND TRADEMARKS



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











| | 9
| | -



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GOVERNMENTAL
  REGULATION



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



EMPLOYEES



As of July 31, 2005, we employed 13 persons on a full-time basis, including 2 in management, 2 in sales, 1 in clerical, 1 in accounting, 1 in purchasing, 3 in engineering and 3 in production.  We have enjoyed good labor relations.



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



Item
  2. DESCRIPTION OF PROPERTY



Our
  principal executive offices are located at 5 Columbia Somerville, New Jersey.
  The space consists of approximately 7,000 square feet of which approximately
  5,000 square feet is dedicated to manufacturing, production and testing and
  approximately 2,000 square feet is dedicated to administrative and storage needs.
  Our current monthly rent expense is $ 4,600.The executive office houses both
  the manufacturing division and the temporary staffing division. In the opinion
  of management, the space is adequately covered by insurance.



Item
  3. LEGAL PROCEEDINGS



None



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



NA





| | 10
| | --



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PART
  II



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



MARKET PRICE FOR COMMON STOCK AND CLASS A WARRANTS



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

The
  following table sets forth, for the periods indicated, the high and low prices
  of the Company's Common Stock traded on the Nasdaq Capital Market for 2005 and
  2004.



|                       |             
|---------------------- | ------------
|                       | Common Stock
|Fiscal Year
      2005 | High        
|                       |             
|First Quarter          | 6.61        
|                      
|Second Quarter         | 6.30        
|                       |             
|Third Quarter          | 4.29        
|                       |             
|Fourth Quarter         | 2.07        

|                       |              |     
|---------------------- | ------------ | ----
|                       |             
|                       | Common Stock
|Fiscal Year
      2004 | High         | Low 
|                       |              |     
|First Quarter          | 1.45         | .55 
|                      
|Second Quarter         | 1.25         | .73 
|                       |              |     
|Third Quarter          | 8.77         | .60 
|                       |              |     
|Fourth Quarter         | 7.88         | 1.65





(b)
          As of July 31, 2005, the Company's
  Common Stock was held by approximately 744 shareholders of record. Our transfer
  agent is Continental Stock Transfer & Trust Company, with offices at 17
  Battery Place, 8th floor, New York, New York, telephone number (212)
  509-4000. As transfer agent for our shares of common stock the transfer agent
  is responsible for all record-keeping and administrative functions in connection
  with the common shares of stock.



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





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



Subsequent to July 31, 2004, (1) the remaining principal balance of $ 1,094,000 from the issuance of convertible debentures during the fiscal year ended July 31, 2004, was converted into 1,032,075 common shares. (2) Additionally, warrants expiring April 26, 2011 were exercised resulting in the issuance of 270,000 common shares in exchange for $ 429,300.



On July 29, 2004, the Company entered into a subscription agreement with certain  investors to issue and sell in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended.  Pursuant to the subscription agreement the Company sold to the investors 479,000 shares of its common stock and warrants to purchase 200,000 shares of the Companys common stock at a price of  $1.84 per share, which expire on July 30, [2029] and received gross proceeds of $688,500 and net proceeds of $598,995 before deducting attorneys fees, printing fees, filing fees and other miscellaneous fees and expenses related to the private placement.  The warrants were valued using the Black-Scholes option valuation model with a resulting allocation of the aggregate proceeds from the subscription attributable to the warrants of $399,401.  The following assumptions were
utilized to value the warrants: price per share of common stock of $1.84; expected life of five years; expected volatility of 149%; a risk free interest rate of 3.7%; and an expected yield of 0.0%. On February 15, 2005 the 200,000 warrants were exercised and the Company received proceeds of $ 367,500.



On February 18, 2005, the Company entered into a subscription agreement with certain investors to issue and sell in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. Pursuant to the subscription agreement, the Company sold to the investors 1,369,355 shares of its common stock and warrants to purchase 958,549 shares of its common stock at a price of  $1.25, which expire on August 18, 2010 and received gross proceeds of $4,245,000 and net proceeds of $3,710,650before deducting attorneys fees, printing fees, filing fees and other miscellaneous fees and expenses related to the private placement.



On July 19, 2005, the Company entered into a subscription agreement with certain investors to issue and sell in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended.  Pursuant to the subscription agreement, the Company sold to the investors 1,200,000 shares of its common stock and warrants to purchase 1,440,000 shares of its common stock at a price of $1.6892 per share, which expire on January 19, 2011 and the Company received gross proceeds of $1,500,000 and net proceeds of $1,350,000 before deducting attorneys fees, printing fees, filing fees and other miscellaneous fees and expenses related to the private placement.



RESULTS
  OF OPERATIONS



2005
  Compared to 2004



Product
  revenue for the fiscal year ended July 31, 2005 totaled $549,222 a decrease
  of 42.9% or $413,786 from $963,008 reported for fiscal year ended July 31, 2004.
  The Company attributed the decrease in product revenue to delayed and extended
  deliveries. Subsequent to the events of September 11, 2001, utilities were required
  to upgrade security on newly developed



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products
  such as the PDR-2000 system. During the fourth quarter ended July 31, 2005 a
  substantial number of PDR-2000 systems, which had been shipped and invoiced
  in the third quarter ended April 30, 2005, were returned by the utilities for
  software upgrades to conform to these standards. Consequently the Company issued
  credits to these utilities, producing the effect of a net reduction in revenues
  for the 12 months ended July 31, 2005 when compared to the 9 months ended April
  30, 2005. This extensive re-design and testing resulted in extended delivery
  dates to customers. The Company also saw a decrease in military contract orders.



Product cost for the fiscal year ended July 31, 2005 totaled $494,605 a decrease of 45.8% or $418,956 from $913,561 reported for fiscal year ended July 31, 2004.  The Company attributes the decrease in product cost as a percentage of sales, a direct relation to the decrease in sales orders.



Gross profit for products for the years ended July 31, 2005 and July 31, 2004 totaled $54,617 and $49,447, respectively, representing 10.0% and 5.1% of product revenue.  The increase in gross profit for products is attributed to the product mix and  outsourcing.



General
  and Administrative expenses for the years ended July 31, 2005 and July 31, 2004
  totaled $2,498,039 and $4,366,919, respectively. The Company attributes the
  decrease of $1,868,880 in general and administrative expense, in part, to the
  decrease in stock-based compensation; however, this decrease was partially off-set
  by (i) salaries paid to officers in fiscal 2005 which had not been paid in fiscal
  2004; (ii) reinstatement of certain employee benefits, which had been suspended
  in fiscal 2004; and (iii) an increase in expenses related to increased sales
  and marketing efforts. At a meeting on February 10, 2005, the Companys
  shareholders approved a proposal that authorized the Companys Board to
  issue from time-to-time an aggregate of 350,000 shares of the Companys
  common stock to its directors and employees, including its officers, and on
  February 10, 2005, the Companys Board of Directors granted an aggregate
  of 350,000 shares of the Companys common stock to its directors and employees,
  including its officers. Stock grants to the Companys employees, officers
  and directors are an expense which is reflected as a part of the Companys
  general and administrative cost. The amount of this expense is determined by
  multiplying the number of shares granted by the closing price of the Companys
  common stock as reported on the Nasdaq Capital Market on the day before the
  grant Stock-based compensation expenses for the year ended July 31, 2005 was
  $547,750, which was a decrease of $3,044,250 from the $3,592,000 in stock-based
  compensation expenses for the fiscal year ended July 31, 2004.

Research
  and development expenses for the fiscal year ended July 31, 2005 increased $
  83,354 over fiscal 2004 to $ 177,338 resulting in upgrades to the PDR 2000,
  a high speed communications system for use in electric power transmission pilot
  protection schemes, and the development of a new CM-100 product were completed
  during the year.



The Companys interest income for the fiscal year ended July 31, 2005 totaled $58,154 compared to $7,034 for fiscal year ended July 31, 2004. The totals for fiscal years 2005 and 2004 include interest income derived from the Companys interest bearing accounts through several banks.

The Companys interest expense for the fiscal year ended July 31, 2005 totaled $23,371, compared to $ 1,220,960 for fiscal year ended July 31, 2004. The companys interest expense for fiscal 2004 includes $ 1,200,000 of detachable warrants issued with a convertible debt having a beneficial conversion option. The value assigned to these warrants was recorded as interest expense and not amortized.





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As a result of the foregoing, the Company reported a net loss from continuing operations of $ 2,987,329 or $ .59 per share for fiscal 2005, compared to a net loss from continuing operations of $ 6,275,886 or $ 4.08 per share for fiscal 2004.



The net loss from discontinued operations for fiscal year ended July 31, 2004 totaled $222,404. The discontinued operations were a result of the sale of the Companys Atlas Design subsidiary. The decision to sell the component was based on the intensely competitive and highly fragmented nature of the placement services business.





2004 Compared to 2003



(Comparison does not include Atlas Design, which provided placement services, was sold during the fiscal year 2004 and is reported as a discontinued operation at July 31, 2004.)



Product revenue for the fiscal year ended July 31, 2004 totaled $963,008 an increase of 59.4% or $358,744 from $604,264 reported for fiscal year ended July 31, 2003. The Company attributed the increase in product revenue to increased orders for its Series PTR-1500 high speed communications system.



Product cost for the fiscal year ended July 31, 2004 totaled $913,561 an increase of 159% or $561,336 from $352,225 reported for fiscal year ended July 31, 2003.  The Company attributes the increase in product cost to the increase in sales of the PTR-1500 and to the write down of additional obsolete inventory in the amount of $ 263,700.



Gross profit for products for the years ended July 31, 2004 and July 31, 2003 totaled $49,447 and $252,039, respectively, representing 5.1% and 41.7% of product revenue.  The decrease in gross profit for products is attributed to the product mix and the additional write down of obsolete inventory.



General
  and Administrative expense for the years ended July 31, 2004 and July 31, 2003
  totaled $4,366,919 and $1,579,196, respectively. The Company attributed the
  increase of $2,787,723 in selling, general and administrative expense to a higher
  commission expense, additional trade show costs and increased professional fees
  due to compliance with increased regulations under the Sarbanes-Oxley Act. At
  the Annual Meeting of Shareholders of the Company held on June 25, 2003, the
  Companys shareholders approved a proposal that authorized the Companys
  Board to issue from time-to-time an aggregate of 800,000 shares to the Companys
  officers and/or directors. In April 2004, the Board granted an aggregate of
  800,000 shares of the Companys common stock to its directors and officers.
  At the Annual Meeting of Shareholders of the Company held on June 25, 2003,
  the Companys shareholders approved a proposal that authorized the Companys
  Board to issue from time-to-time an aggregate of 800,000 shares to the Companys
  officers and/or directors. In April 2004, the Board granted an aggregate of
  800,000 shares of the Companys common stock to its directors and officers.
  Stock grants to the Companys employees, officers and directors are an
  expense which is reflected as a part of the Companys general and administrative
  costs. The amount of this expense is determined by multiplying the number of
  shares granted by the closing price of the Companys common stock as reported
  on the Nasdaq Capital Market on the day before the grant. Stock-based compensation
  expenses for the year ended July 31, 2004 was $3,592,000, which was a increase
  of $3,148,865 from the $443,135 in stock-basedcompensation
  expenses for the fiscal year ended July 31, 2003.



Research and development expenses for the fiscal year ended July 31, 2004 totaled $177,338. The development of the PDR 2000, a high speed communications system for use in electric power transmission pilot protection schemes, was completed during the year.

The Companys interest income for the fiscal year ended July 31, 2004 totaled $7,034 compared to $13,711 for fiscal year ended July 31, 2003. The totals for fiscal years 2004 and 2003 include interest income derived from the Companys interest bearing accounts through several banks. The decrease in interest income reflects the companys proactive purchasing policy of seeking benefits through purchasing agreements.



The
  Companys interest expense for the fiscal year ended July 31, 2004 totaled
  $1,220,960, compared to $ 17,432 for fiscal year ended July 31, 2003. The companys
  interest



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expense
  for fiscal 2004 includes $ 1,200,000 of detachable warrants issued with a convertible
  debt having a beneficial conversion option. The value assigned to these warrants
  was recorded as interest expense and not amortized. The Companys interest
  expense for fiscal 2003 was due to interest payments on the Companys line
  of credit through Unity Bank; the maturity date of this line of credit was December
  17, 2003.

As a result of the foregoing, the Company reported a net loss from continuing operations of $ 6,275,886 or $ 4.08 per share for fiscal 2004, compared to a net loss from continuing operations of $ 1,256,405 or $ 1.38 per share for fiscal 2003.

The net loss from discontinued operations for fiscal year ended July 31, 2004 totaled $222,404 and $ 124,708 for fiscal year ended July 31, 2003. The discontinued operations were a result of the sale of the Companys Atlas Design subsidiary. The decision to sell the component was based on the intensely competitive and highly fragmented nature of the placement services business.





LIQUIDITY AND CAPITAL RESOURCES



Working capital at July 31, 2005 was $5,281,191 compared to $285,360 at year ended July 31, 2004. The increase in the working capital is attributable to the issuance of common stock for cash.



Accounts receivable have decreased from $148,171 at July 31, 2004 to $ 89,194 at July 31, 2005.  This decrease of $58,977 is the result of decreased sales during the 4th quarter.



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



INFLATION



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





CRITICAL ACCOUNTING POLICIES



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









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Income
  Recognition

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



Receivables and Allowance for Doubtful Accounts



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



Inventory Valuations, Components and Aging



Inventories are valued at the lower cost or market. Determined by a first-in, first-out (FIFO) method.



The Companys products are used in radio and other transmissions, telephone and telephone exchanges, air and traffic controls, automatic transmission of data for utilities, tele-printing of transmission data such as news and stock market information and for use by electric utilities in monitoring power transmissions lines for faults and/or failures.



The Company currently manufactures and supports over 400 products and assemblies that have been in the market place since 1970. The Companys inventory represents approximately 10,000 different components and 2,500 assemblies.



The Company presents its inventory in three categories, Finished Goods, Work-in-Process and Raw Materials.

Finished Goods represents products that have been completed in connection with specific orders and are awaiting shipment. Finished Goods can consist of produces like the PDR-2000, PTR-1500 and 1000, Gen 1, 98 and 68 series. Work-in-Process represent components that have been requisitioned from the warehouse and are being assembled in the assembly areas. Depending on the configurations required by a customer, products are completed and tested within 8 to 10 business days. Raw Materials represent components in their original packaging stored in a secured warehouse area, and may consist, in part, of Face plates, PC boards, Digital screen assemblies, Guide rails, Capacitors, Terminals, Power supplies, Process ships, Chassis and racks,

Relays, Keypads and Resistors.



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









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Every
  component, regardless of age, has been purchased to meet the above criteria
  and may be used in any and all above said assemblies. Management believes that
  this inventory, which is minimally adequate, is required to implement the Companys
  commitments to military requirements for present and delivered orders.



The Company, together with its independent auditors, following inventory analysis and repeated annual testing, established a 3-year rule for maintaining inventory, which requires a write-down policy for inventory parts depending on their age. The inventory is tested annually applying its 3-year rule and the Company classifies as current assets only that amount of inventory it expects to realize in the next one-year operating cycles, the balance of the inventory is classified as non-current. The non-current portion of the inventory consists of the same or like components as the current portion, however, the Company does not project these components being used in production in the next fiscal period.  The Company expects to realize the non-current portion of the inventory through its normal sales activity over the next two fiscal years. Any parts which have not been used for 3 years are valued at zero.  Any
parts, written down to a zero value under the 3-year rule, are maintained in inventory to satisfy the requirements under our long-term warranty programs.



While our inventory value at July 31, 2005 was approximately $ 1.8 million, the total of actual parts held in inventory exceeds $ 4.5 million.



Warranty



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



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



Income Taxes



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



Item
  7. FINANCIAL STATEMENT



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









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



On
  September 13, 2004, Rosenberg Rich Baker Berman & company resigned and provided
  written notice to the Company that the auditor-client relationship had ceased.
  The Company filed a Form 8-K wherein it stated: The
  reports of Rosenberg Rich Baker Berman & Company on the consolidated financial
  statements of the Company and its subsidiaries for the Companys last two
  fiscal years did not Contain an adverse opinion or a disclaimer of opinion.
  On September 21, 2004, the Company engaged Bagell, Josephs, Levine & Company,
  LLC as the independent accountant for the Registrant to audit the Companys
  financial statements.



Item
  8A. CONTROLS AND PROCEDURES



The
  Company maintains disclosure controls and procedures designed to ensure that
  the information the Company must disclose in its filings with the Securities
  and Exchange Commission is recorded, processed, summarized and reported on a
  timely basis. The Company's Chief Executive Officer, Chief Financial Officer
  and its Chief Operating Officer have reviewed and evaluated the Company's disclosure
  controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
  Securities Exchange Act of 1934, as amended (the "Exchange Act") as of the end
  of the period covered by this report (the "Evaluation Date"). Based on such
  evaluation, such officers have concluded that, as of the Evaluation Date, the
  Company's disclosure controls and procedures are effective in bringing to their
  attention on a timely basis material information relating to the Company required
  to be included in the Company's periodic filings under the Exchange Act.



There
  have not been any changes in the Company's internal control over financial reporting
  (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during
  the Company's most recently completed fiscal quarter that have materially affected,
  or are reasonably likely to materially affect, the Company's internal control
  over financial reporting.





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PART III



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



The following table sets forth certain information regarding the officers and directors of the Company as of October 27, 2005.



|Name             | Age | Position                                                                     
|---------------- | --- | -----------------------------------------------------------------------------
|Robert S. Benou  | 71  | Chairman, Chief Executive Officer, Chief Financial Officer
      and Director
|Marc R. Benou    | 38  | President, Chief Operating Officer, Secretary and Director                   
|Louis S. Massad  | 68  | Director                                                                     
|Edward J. Rielly | 38  | Director                                                                     
|David M. Peison  | 38  | Director                                                                     
|Thomas Fogg      | 68  | Officer, Vice President-Engineering                                          

Robert S. Benou has been the Companys
  Chairman and Chief Executive Officer since May 1, 2001. He is also the Companys
  Chief Financial Officer. From 1968 until May 1, 2001, he served as the Companys
  President. Mr. Benou is responsible for new product development and supervision
  of sales and marketing. From June 2001 until August 2005, Mr. Benou served as
  a director of Henry Bros. Electronics, Inc. (formerly known as Diversified Security
  Solutions, Inc.), a publicly held company that is a single-source/turn-key provider
  of technology-based security solutions for medium and large companies and government
  agencies. Mr. Benou is also a member of the Board of Directors of eXegenics
  Inc. The common stock of eXegenics Inc. is traded on the OTC Bulletin Board.
  Mr. Benou is a graduate of Victoria College and holds a BS degree from Kingston
  College, England and a BSEE from Newark College of Engineering, in addition
  to industrial management courses at Newark College of Engineering. Robert S.
  Benou is the father of Marc R. Benou.



Marc R. Benou has been the Companys President and Chief Operating Officer since May 1, 2001. Mr. Benou joined the Company in 1991 and is responsible for material purchasing and inventory control. From March 1995 until May 1, 2001, he served as Vice President. Mr. Benou has been on the companys Board and has served as the Companys assistant secretary since March 1995. Mr. Benou attended Lehigh and High Point University and holds a BS degree in Business Administration and Management. Marc R. Benou is the son of Robert S. Benou, the Companys Chairman and Chief Executive Officer.



Louis S. Massad has been a Director of the Company since April 1995. Mr. Massad was Chief Financial Officer and a Director of Henry Bros. Electronics, Inc. (formerly known as Diversified Security Solutions, Inc.). from 2000 until August 2003. From 1997 to 2000, Mr. Massad was a consultant to Diversified Security Solutions, Inc. From 1986 to 1997, Mr. Massad was a Vice President, Chief Financial Officer and Director of Computer Power Inc. Mr. Massad holds a BS and MS degree from Cairo University (Egypt) and an MBA from Long Island University, New York.





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Edward J. Rielly has been a Director of the Company since January 1998.  Mr. Rielly is a Senior Application Developer with Household International, a financial corporation. From March 2000 to November 2001, Mr. Rielly was a Senior Consultant with Esavio Corporation. From February 1998 to February 2000, Mr. Rielly was an Application Developer with Chubb Corporation. From 1993 to 1998, Mr. Rielly was an Application Developer with the United States Golf Association. Mr. Rielly is a graduate of Lehigh University and holds a BS in Computer Science.



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



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



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



Audit Committee.



The Companys Board of Directors has determined that Louis Massad is the Audit Committees Financial Expert.



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



Section 16(a) Compliance.



Section
  16(a) of the Exchange Act, requires our directors and officers, and persons
  who own more than 10% of our Common Stock, to file with the Securities and Exchange
  Commission initial reports of beneficial ownership and reports of changes in
  beneficial ownership of our Common Stock and other equity securities. Our officers,
  directors and greater than 10% beneficial owners are required by SEC regulation
  to furnish us with copies of all Section 16(a) forms they file. To our knowledge,
  based solely on a review of the copies of such reports furnished to us and written
  representations that no other reports were required, during the fiscal year
  ended July 31, 2005, all Section 16(a) filing requirements applicable to our
  officers, directors and greater than 10% beneficial owners were complied with
  except that Forms 4 for Marc Benou and Robert Benou were not timely filed and
  a Form 3 for Mr. David Peison was not timely filed. These forms have since been
  filed.





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Code of Ethics.

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



Item
  10. EXECUTIVE COMPENSATION



The following table sets forth the total compensation paid to, accrued and forgiven by each executive officer during fiscal 2005.

|Annual
      Compensation                        |  | Long-Term
      Compensation          
|------------------------------------------------ |  | --------------------------------------
|Name
      and Principal                         |  | Fiscal
      Year-End 
      (July 31)
|Robert Benou,
      Chairman,                    |  | 2005                                  
|Chief Executive
      Officer,                   |  | 2004                                  
|Chief
      Financial Officer
      and Director |  | 2003                                  
|Marc Benou,
      President,                     |  | 2005                                  
|Chief Operating
      Officer,                   |  | 2004                                  
|Secretary
      and Director                     |  | 2003                                  
|Thomas Fogg,                                     |  | 2005                                  
|Vice President
      -                           |  | 2004                                  
|Engineering                                      |  | 2003                                  





|* For the fiscal year ended July 31, 2003, Robert Benou forgave
      his entire salary for such fiscal year and for the fiscal year ended July
      31, 2004, Mr. Benou forgave his entire salary for such fiscal year.                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|** For the fiscal year ended July 31, 2003, Marc Benou forgave
      $54,644 of his salary and for the fiscal year ended July 31, 2004, Mr. Benou
      forgave $63,500 of his salary.                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|*** Other compensation consisted of a car allowance.                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(1) The Company began paying Robert Benous 2005 bonus
      in September 2005, in monthly installments of $9,000, which may increase
      depending on the Companys cash requirements. Mr. Benous entire
      bonus of $125,000 will be paid in the next fiscal year. The Company is recording
      the liability in fiscal year-ended July 31, 2005 because the bonus was paid
      for Mr. Benous contributions to the Company during the 2005 fiscal
      year.























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(2)
  The Company paid Marc Benous bonus in two installments of $30,000 in August
  and September 2005, respectively. The Company is recording the liability in
  fiscal year-ended July 31, 2005 because the bonus was paid for Mr. Benous
  contributions to the Company during the 2005 fiscal year.



(3)
  On February 10, 2005, our stockholders approved the granting of 350,000 shares
  of our common stock to our directors, officers and employees. As of July 31,
  2005, all of these shares were granted.



On July 9, 2002 our stockholders approved our 2002 Stock Option Plan under which up to 190,000 shares of our common stock may be granted to our employees, directors and consultants. To date, no options have been granted under this plan. The exercise price of options granted under the 2002 Stock Option Plan will be the fair market value of our common stock on the date immediately preceding the date on which the option is granted.



EMPLOYMENT AGREEMENTS



Mr. Robert Benou is serving under an employment agreement commencing June 1, 1997 and ending May 31, 2002, which pursuant to its terms, renews for one-year terms until cancelled by either the Company or Mr. Benou.Mr. Benous annual base salary as of July 31, 2005 was $350,000 and increases by $20,000 annually on June 1st of each year.  In addition, Mr. Benou is entitled to an annual bonus equal to 6% of the Companys annual income before income tax provision as stated in its annual Form 10-KSB. The employment agreement also entitles Mr. Benou to the use of an automobile and to employee benefit plans, such as; life, health, pension, profit sharing and other plans.  Under the employment agreement, employment terminates upon death or disability of the employee and the employee may be
terminated by the Company for cause.



Mr. Marc Benou is serving under an employment agreement commencing June 1, 1997 and ending May 31, 2002, which pursuant to its terms, renews for one-year terms until cancelled by either the Company or Mr. Benou.  Mr. Benous annual base salary as of July 31, 2005 was $112,000 and he receives annual increases of $6,000 on June 1st of each year.  Mr. Benou is entitled to an annual bonus equal to 3% of the Companys annual income before income tax provision as stated in its annual Form 10-KSB.  The employment agreement also entitles Mr. Benou to the use of an automobile and to employee benefit plans, such as; life, health, pension, profit sharing and other plans. Under the employment agreement, employment is terminated upon death or disability of the employee and employee may be terminated by the Company for cause.



Item
  11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT



The following table sets forth, as of July 31, 2005, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers.  Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated.









| | 22
| | --



---



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



Under thee rules of the Securities and Exchange Commission, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security.  The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days.  Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest.

Unless otherwise noted, the address for each of the named individuals is c/o Conolog Corporation, 5 Columbia Road, Somerville, New Jersey 08876.



Shares of common stock which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.  The applicable percentage of ownership is based on 7,417,847 shares issued and outstanding.



|Name and Title                                                                           | Amount
        and 
        Nature of 
        BeneficialOwnership | Percent
        ofClass
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | -----------------------
|Robert S. Benou, Chairman, Chief Executive Officer, Chief Financial Officer and Director | 208,400                                                            | 2.81%                  
|Marc R. Benou, President, Chief Operating Officer, Secretary and Director                | 229,000                                                            | 3.09%                  
|Thomas Fogg, Vice President  Engineering                                                | 20,000                                                             | *                      
|Louis Massad, Director                                                                   | 0                                                                  | *                      
|Edward J. Rielly, Director                                                               | 0                                                                  | *                      
|David M. Peison, Director                                                                | 20,000                                                             | *                      
|All Officers and Directors as a Group (6 persons)                                        | 477,000                                                            | 6.43%                  
|DKR Soundshore Oasis Holding Fund Limited                                                | 400,000 (1)                                                        | 5.39%                  
|Barclays Global Investors, N.A.                                                          | 417,709 (2)                                                        | 5.63%                  
|Excalibur Limited Partnership                                                            | 590,000 (3)                                                        | 7.95%                  



* Less than 1%.



(1)
  The beneficial ownership of DKR Soundshore Oasis Holding Fund Limited does not
  include (i) 200,000 shares of our common stock issuable upon exercise of a warrant
  with an exercise price of $1.25 per share because this warrant cannot be exercised
  until January 20, 2006, and (ii) 400,000 shares of our common stock issuable
  upon the exercise of a warrant with an exercise price of $1.6892 per share because
  this warrant cannot be executed until January 18, 2006. DKR Oasis Management
  Company LP, pursuant to an investment management agreement with DKR Soundshore
  Oasis Holding Fund Ltd., has voting and investment authority over DKR Soundshore
  Oasis Holding Fund Ltd. Seth Fisher is the managing partner of Oasis Management
  Holdings LLC, one of the general partners of DKR Oasis Management Company, LP,
  and as





| | 23
| | --



---



such
  has ultimate trading authority over DKR Soundshore Oasis Holding Fund Ltd. Mr.
  Fischer disclaims beneficial ownership over these securities. The address for
  DKR Soundshore Oasis Holding Fund Limited is 18 Church Street, Hamilton, HM11
  Bermuda.



(2) The information for Barclays Global Investors, N.A. is based on information contained in a Schedule 13G filed with the Securities and Exchange Commission on February 16, 2005.  The principal business address for Barclays Global Investors, N.A. is 45 Fremont Street, San Francisco, CA 94105.



(3) The beneficial ownership of Excalibur Limited Partnership does not include (i) 75,000 shares of our common stock issuable upon exercise of a warrant with an exercise price of $1.25 per share because this warrant cannot be exercised until January 20, 2006 and (ii) 440,000 shares of our common stock issuable upon the exercise of a warrant with an exercise price of $1.6892 per share because this warrant cannot be exercised until January 18, 2006.  William Hechter is the president of Excalibur Limited Partnership and as such has voting and investment control over these securities.  Mr. Hechter disclaims beneficial ownership of these securities.





Item
  12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Robert
  Benou, our Chairman, Chief Executive Officer and Chief Financial Officer has
  made a series of non-recourse loans to the Company totaling $326,428 as of July
  31, 2002. The Company repaid $56,499 during fiscal year 2003, $103,000 during
  fiscal 2004 and the balance of $166,929 plus simple interest of $23,371 was
  paid during fiscal year 2005. Each loan bears an interest rate of 4.00% and
  must be paid by the Company one year from the date the loan is made.



Item
  13. EXHIBITS



|(a) | Exhibits.
|--- | ---------

Index of Exhibits



|Exhibit No. | Description of Exhibits
|----------- | -----------------------



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



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



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



|3.1.3 | Certificate
        of Ownership and Merger with respect to the merger of Data Sciences (Maryland)
        into the Registrant and the change of Registrants name from Data
        Sciences Incorporated to DSI Systems, Inc. - incorporated
        by reference to Exhibit 3.03(a) to the Registrants Registration
        Statement on Form S-1 (File No. 2-31302).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







| | 24
| | --



---





|3.1.4 | Certificate
        of the Designation, Preferences and Relative, Participating, Option or
        Other Special Rights and Qualifications, Limitations or Restrictions thereof
        of the Series A Preferred Stock (par value $.50) of DSI Systems, Inc.
        - incorporated by reference to Exhibit 3.04 to the Registrants Registration
        Statement on Form S-1 (File No. 2-31302).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3.1.5 | Certificate of the Designation, Preferences and Relative, Participating, Option or Other Special Rights and Qualifications, Limitations or Restrictions thereof of the Series B Preferred Stock (par value $.50) of DSI Systems, Inc. - incorporated by reference to Exhibit 1 to the Registrants Current Report on  Form 8-K for November 1972.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



|4.1 | Specimen Certificate for shares of Common Stock (1)
|--- | ---------------------------------------------------



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

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

|10.3 | Conolog Corporation 2002 Stock Option Plan (3)
|---- | ----------------------------------------------



|10.4 | Subscription Agreement dated as of July 17, 2005, among Conolog Corporation and the subscribers named therein (4)
|---- | -----------------------------------------------------------------------------------------------------------------

|10.5 | Form of Warrant (issued by Conolog Corporation pursuant to the July 17, 2005 Subscription Agreement) (4)
|---- | --------------------------------------------------------------------------------------------------------

|10.6 | Form of Brokers Warrant (issued by Conolog Corporation pursuant to the July 17, 2005 Subscription Agreement) (4)
|---- | ----------------------------------------------------------------------------------------------------------------

|10.7 | Subscription Agreement dated December 3, 2004 (5)
|---- | -------------------------------------------------

|10.8 | Form of Warrant (issued pursuant to the December 3, 2004 Subscription Agreement)
|---- | --------------------------------------------------------------------------------

|10.9 | Form of Brokers Warrant issued pursuant to the December 3, 2004 Subscription Agreement
|---- | --------------------------------------------------------------------------------------

|14.1 | Code of Ethics (4)
|---- | ------------------

|21.1 | List of Subsidiaries*
|---- | ---------------------

|23.1 | Consent of Bagell, Josephs, Levine and Company LLC*
|---- | ---------------------------------------------------

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







| | 25
| | --



---



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

|32. | Section
        1350 Certification
|--- | ----------------------------------

----------------------------------

*
  Filed herewith

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

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

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

| | (4) | Incorporated by reference to the 8-K filed with the Securities and Exchange Commission on July 25, 2005.
| | --- | --------------------------------------------------------------------------------------------------------

| | (5) | Incorporated by reference to the 8-K filed with the Securities and Exchange Commission on December 10, 2004.
| | --- | ------------------------------------------------------------------------------------------------------------



Item
  14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Bagell, Josephs, Levine & Company LLC was retained by the Company on September 21, 2004 to serve as its principal accountant. Prior to that date, Bagell, Josephs, Levine & Company LLC did not perform any services nor receive any fees from the Company.



Audit Fee

Bagell, Josephs, & Company LLC billed the Company in the aggregate amount of $33,000 and $21,000 for professional services rendered for their audit of our annual financial statements and their reviews of the financial statements included in our Forms 10-QSB for the years ended July 31, 2005 and 2004, respectively.



AUDIT-RELATED
  FEES

NO
  FEES WERE BILLED FOR THE YEARS ENDED JULY 31, 2005 AND 2004 FOR ASSURANCE AND
  RELATED SERVICES BY BAGELL, JOSEPHS, LEVINE & COMPANY LLC THAT ARE REASONABLY
  RELATED TO THE PERFORMANCE OF THE AUDIT OR REVIEW OF THE COMPANY'S FINANCIAL
  STATEMENTS AND ARE NOT REPORTED UNDER THE CATEGORY AUDIT FEES DESCRIBED ABOVE.

TAX FEES

No fees were billed for the years ended July 31, 2005 and 2004 for tax compliance, tax advice, or tax planning services by Bagell, Josephs, Levine & Company LLC that are reasonably related to the performance of the audit or review of the Companys financial statements and are not reported under the category Audit Fees described above.

ALL OTHER FEES

No fees were billed to the company by Bagell, Joseph, Levine & Company LLC for the years ended July 31, 2005 and 2004 for services not described above.

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





| | 26
| | --



---







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, 2005 | 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, 2005 | /s/
        Robert S. Benou           | 
|---------------- | ------------------------------------- | 
|                 | Chairman, Chief Executive Officer and
|                 | Chief Financial Officer               | 
|                 |                                       | 



|October
        26, 2005 | /s/
        Marc R. Benou                                         
|------------------------ | ------------------------------------------------------------------
|                         | President,
        Chief Operating Officer, Secretary and Director



|October 26, 2005 | /s/
        Louis S. Massad
|---------------- | ---------------------------
|                 | Director                   



|October 26, 2005 | /s/
        Edward J. Rielly
|---------------- | ----------------------------
|                 | Director                    



|October 26, 2005 | /s/
        David M. Peison
|---------------- | ---------------------------
|                 | Director                   





| | 27
| | --



---

















Conolog Corporation and Subsidiaries



Consolidated Financial Statements



July 31, 2005 and 2004





---



















Annual Report on Form 10-K



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



Consolidated Financial Statements



Years Ended July 31, 2005 and 2004





Conolog Corporation and Subsidiaries



Somerville, New Jersey





---









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

Index to the Consolidated Financial Statements

Conolog Corporation and Subsidiaries

July 31, 2005 and 2004







| | Page
| | ----



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



| | Report Of Independent Registered Public Accounting Firm | F-1
| | ------------------------------------------------------- | ---



| | Consolidated Balance Sheets as of July 31, 2005 and 2004 | F-2
        - F-3
| | -------------------------------------------------------- | -----------------



|                                                 | Consolidated
        Statements of Operations for the years ended July 31, 2005 and 2004         | F-4      
|------------------------------------------------ | ------------------------------------------------------------------------------------------------ | ---------
|                                                 |                                                                                                  |          
|                                                 | Consolidated Statements
      of Stockholders Equity for the years ended July 31, 2005 and 2004 | F-5      
|                                                 |                                                                                                  |          
|                                                 | Consolidated Statements
      of Cash Flows for the years ended July 31, 2005 and 2004           | F-6 - F-7
|                                                 |                                                                                                  |          
|Notes
      to Consolidated Financial Statements | F-8-
      F-20                                                                                 











---







BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.

Certified Public Accountants



High Ridge Commons

Suites 400-403

200 Haddonfield Berlin Road

Gibbsboro, New Jersey 08026

(856) 346-2828  Fax (856) 346-2882



REPORT
  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board of Directors

Conolog Corporation

Somerville, New Jersey



We have audited the accompanying consolidated balance sheets of Conolog Corporation and Subsidiaries (the Company) as of July 31, 2005 and 2004 and the related consolidated statements of operations, changes in stockholders equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides a reasonable basis for our opinions.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Conolog Corporation and its Subsidiaries as of July 31, 2005 and 2004, and the results of its operations, changes in stockholders equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.



BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.

BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.

Certified Public Accountants

Gibbsboro, New Jersey



September 30, 2005



|MEMBER OF: | AMERICAN
        INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
        NEW JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 
        PENNSYLVANIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
|---------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







F-1



---









|CONOLOG
        CORPORATION AND SUBSIDIARIES               
|-----------------------------------------------------------
|CONSOLIDATED
        BALANCE SHEETS                        
|JULY
        31, 2005 and 2004                             
|                                                           
|                                                           
|                                                           
|ASSETS                                                     
|                                                           
|                                                           
|CURRENT
        ASSETS:                                    
|Cash
        and cash equivalents                          
|Accounts
        receivable - net of allowance for doubtful
|accounts
        of $1,000.                                
|Prepaid
        expenses                                   
|Current
        portion of note receivable                 
|Inventory                                                  
|Other
        current assets                               
|                                                           
|Total
        Current Assets                               
|                                                           
|Property,
        Plant and Equipment:                     
|Machinery
        and equipment                            
|Furniture
        and fixtures                             
|Automobiles                                                
|Computer
        software                                  
|Leasehold
        improvements                             
|                                                           
|Less:
        accumulated depreciation and amortization    
|                                                           
|                                                           
|OTHER
        ASSETS:                                      
|Inventory,
        net of current portion                  
|Note
        receivable, net of current portion            
|                                                           
|Total
        Other Assets                                 
|                                                           
|TOTAL
        ASSETS                                       





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

F-2





---











|CONOLOG
        CORPORATION AND SUBSIDIARIES                         
|---------------------------------------------------------------------
|CONSOLIDATED
        BALANCE SHEETS                                  
|JULY
        31, 2005 AND 2004                                       
|                                                                     
|                                                                     
|                                                                     
|LIABILITIES
        AND STOCKHOLDERS' EQUITY                         
|                                                                     
|                                                                     
|LIABILITIES:                                                         
|Current
        Liabilities:                                         
|Convertible
        debt                                             
|Accounts
        payable                                             
|Accrued
        expenses                                             
|Accrued
        legal fees                                           
|Loan
        from officer                                            
|Accrued
        payroll                                              
|                                                                     
|Total
        Liabilities                                            
|                                                                     
|STOCKHOLDERS'
        EQUITY                                         
|Preferred
        stock, par value $.50; Series A; 4% cumulative;    
|162,000
        shares authorized; 155,000 shares issued and         
|outstanding
        at July 31, 2005 and 2004, respectively.         
|Preferred
        stock, par value $.50; Series B; $.90 cumulative;  
|50,000
        shares authorized; 1,197 shares issued and outstanding
|at
        July 31, 2005 and 2004, respectively.                     
|Common
        stock, par value $0.01; 20,000,000 shares authorized; 
|7,417,847
        and 2,879,001 shares issued and outstanding at     
|July
        31, 2005 and 2004 respectively including 220 shares     
|held
        in treasury.                                            
|Contributed
        capital                                          
|Retained
        (deficit)                                           
|Treasury
        shares at cost                                      
|Deferred
        compensation                                        
|Prepaid
        consulting                                           
|                                                                     
|Total
        Stockholders Equity                                   
|                                                                     
|TOTAL
        LIABILITIES AND STOCKHOLDERS' EQUITY                   





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

F-3



---









|CONOLOG
        CORPORATION AND SUBSIDIARIES                
|------------------------------------------------------------
|CONSOLIDATED
        STATEMENTS OF OPERATIONS               
|FOR
        THE YEARS ENDED JULY 31, 2005 AND 2004          
|                                                            
|OPERATING
        REVENUES                                  
|Product
        revenue                                     
|COST
        OF PRODUCT REVENUES                            
|GROSS
        PROFIT                                        
|OPERATING
        EXPENSES                                  
|General
        and administrative costs                    
|Selling
        and trade shows                             
|Professional
        fees                                   
|Research
        and development                            
|                                                            
|Total
        Operating Expenses                            
|LOSS
        BEFORE OTHER INCOME (EXPENSE)                  
|OTHER
        INCOME (EXPENSE)                              
|Interest
        income                                     
|Interest
        expense                                    
|Beneficial
        interest                                 
|Other
        income                                        
|Total
        Other Income (Expense)                        
|LOSS
        FROM CONTINUING OPERATIONS                     
|BEFORE
        INCOME TAX BENEFIT                           
|Benefit
        from income taxes                           
|LOSS
        FROM CONTINUING OPERATIONS                     
|DISCONTINUED
        OPERATIONS:                            
|Loss
        from discontinued operations (net of           
|income
        tax benefit of $0)                           
|(Loss)
        from disposal of discontinued operations (Net
|of
        income tax expense of $0)                        
|NET
        LOSS APPLICABLE TO COMMON SHARES                
|NET
        LOSS PER COMMON SHARE - CONTINUING OPERATIONS   
|NET
        LOSS PER COMMON SHARE - DISCONTINUED OPERATIONS 
|                                                            
|WEIGHTED
        AVERAGE NUMBER OF COMMON                   
|SHARES
        OUTSTANDING                                  





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

F-4



---



**CONOLOG
  CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
  
  FOR THE YEARS ENDED JULY 31, 2005 AND 2004**





|                                                    |  |  | Series A        |         | Series B        |   |              |  |                             |       |        |   |        |  |  | Contributed
        Capital -
        Warrants |  | Retained
          Earnings
          (Deficit) |        | Treasury
          Stock |   | DeferredCompensation |   | Prepaid
          Consulting |            | Total
        Stockholders'
        Equity
|--------------------------------------------------- |  |  | --------------- | ------- | --------------- | - | ------------ |  | --------------------------- | ----- | ------ | - | ------ |  |  | ---------------------------------------------- |  | ----------------------------------------------- | ------ | ------------------------ | - | -------------------- | - | ---------------------------- | ---------- | ------------------------------------------
|                                                    |  |  | Preferred Stock |         | Preferred Stock |   | Common Stock |  | Contributed
        Capital |       |        |   |        |  | 
|                                                    |  |  | Shares          |         | Amount          |   | Shares       |  | Amount                      |       | Shares |   | Amount |  |  |                                                |  |                                                 |        |                         
|Balance at
      July 31, 2003                      |  |  |                 | 155,000 |                 | $ | 77,500       |  |                             | 1,197 |        | $ | 597    |  |  | 1,299,182                                      |  | $                                               | 12,999 |                          | $ | 21,729,632           |   | $                            |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Common shares
      issued to directors             |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 800,000                                        |  |                                                 | 8,000  |                          |   | 3,584,000            |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Common shares
      issued to consultants           |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 599                                            |  |                                                 | 5      |                          |   | 527                  |   |                              |           |                                           
|                                                    |  | 
|Issuance
      of warrants with                     |  | 
|convertible
      debt                              |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 0                                              |  |                                                 | 0      |                          |   | 0                    |   |                              | 1,200,000  |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Conversion
      of debt                            |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 100,000                                        |  |                                                 | 1,000  |                          |   | 105,000              |   |                              |           |                                           
|                                                    |  | 
|Common shares
      and warrants                    |  | 
|issued
      in subscription agreement              |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 479,000                                        |  |                                                 | 4,791  |                          |   | 284,308              |   |                              | 399,401    |                                           
|                                                    |  | 
|Shares issued
      for services to                 |  | 
|be
      provided                                   |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 200,000                                        |  |                                                 | 2,000  |                          |   | 188,000              |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Amortization
      of consultant services           |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   |                     |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Amortization
      of deferred compensation         |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   |                     |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Net loss
      for the year                         |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   |                     |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Dividends                                           |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   | 4,180                |   |                              |           |                                           
|                                                   
|Balance at
      July 31, 2004                      |  |  |                 | 155,000 |                 | $ | 77,500       |  |                             | 1,197 |        | $ | 597    |  |  | 2,878,781                                      |  | $                                               | 28,795 |                          | $ | 25,895,647           |   | $                            | 1,599,401  |                                           
|                                                   
|Conversion
      of debt                            |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 1,032,076                                      |  |                                                 | 10,321 |                          |   | 1,083,679            |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Common shares
      issued for cash                 |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 2,569,355                                      |  |                                                 | 25,686 |                          |   | 3,049,649            |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Costs directly
      related to stock subscriptions |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   | (1,093,781           | ) |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Warrants
      issued for common stock shares       |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   | (1,187,928           | ) |                              | 3,857,593  |                                           
|Warrants
      converted to common                  |  | 
|stock
      shares                                  |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 470,000                                        |  |                                                 | 4,700  |                          |   | 2,391,501            |   |                              | (1,599,401 | )                                         
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Shares issued
      for services to be provided     |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 117,000                                        |  |                                                 | 1,170  |                          |   | 333,181              |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Amortization
      of consultant services           |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   |                     |   |                              |           |                                           
|                                                    |  | 
|Common shares
      issued to officers,             |  | 
|directors
      and employees                       |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 350,000                                        |  |                                                 | 3,500  |                          |   | 1,092,000            |   |                              |           |                                           
|                                                    |  | 
|Amortization
      officers, directors and          |  | 
|employee
      compensation                         |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   |                     |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Exchange
      lots / escheatment                   |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  | 635                                            |  |                                                 |       |                          |   |                     |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Net loss
      for the Year                         |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   |                     |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Dividends                                           |  |  |                 |        |                 |   |             |  |                             |      |        |   |       |  |  |                                               |  |                                                 |       |                          |   | 4,180                |   |                              |           |                                           
|                                                    |  |  |                 |         |                 |   |              |  |                             |       |        |   |        |  |  |                                                |  |                                                 |        |                          |   |                      |   |                              |            |                                           
|Balance at
      July 31, 2005                      |  |  |                 | 155,000 |                 | $ | 77,500       |  |                             | 1,197 |        | $ | 597    |  |  | 7,417,847                                      |  | $                                               | 74,172 |                          | $ | 31,568,128           |   | $                            | 3,857,593  |                                           
|                                                   



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

  F-5

---









|CONOLOG
        CORPORATION AND SUBSIDIARIES                         
|---------------------------------------------------------------------
|CONSOLIDATED
        STATEMENTS OF CASH FLOWS                        
|FOR
        THE YEARS ENDED JULY 31, 2005 AND 2004                   
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|CASH
        FLOWS FROM OPERATING ACTIVITIES                         
|Net
        loss from continuing operations                          
|Adjustments
        to reconcile net loss to net cash                
|(used
        in) continuing operations:                             
|Depreciation                                                         
|Amortization
        of deferred compensation                        
|Amortization
        of prepaid consulting expense                   
|Net
        (loss) on sale of subsidiaries                           
|Gain
        on sale of equipment                                    
|Common
        stock issued for services                             
|Common
        stock based compensation                              
|Warrants
        issued with convertible debt                        
|                                                                     
|Changes
        in assets and liabilities                            
|(Increase)
        decrease in accounts receivable                   
|Decrease
        in inventories                                      
|(Increase)
        in other current assets                           
|Decrease
        in deferred income taxes                            
|Increase
        (decrease) in accounts payable                      
|Increase
        (decrease) in accrued expenses and other liabilities
|                                                                     
|Net
        cash (used in) continuing operations                     
|                                                                     
|DISCONTINUED
        OPERATIONS                                      
|Net
        (loss)                                                   
|Change
        in net assets of discontinued operations              
|                                                                     
|Net
        cash provided by discontinued operations                 
|                                                                     
|CASH
        FLOWS FROM INVESTING ACTIVITIES                         
|Proceeds
        from sale of equipment                              
|Purchase
        of equipment and leasehold improvements             
|                                                                     
|Net
        cash (used in) investing activities                      





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

F-6



---









|CONOLOG
        CORPORATION AND SUBSIDIARIES                  
|--------------------------------------------------------------
|CONSOLIDATED
        STATEMENTS OF CASH FLOWS (CONTINUED)     
|FOR
        THE YEARS ENDED JULY 31, 2005 AND 2004            
|                                                              
|                                                              
|                                                              
|                                                              
|CASH
        FLOWS FROM FINANCING ACTIVITIES                  
|Repayment
        of line of credit                           
|Proceeds
        of loan from officer                         
|Repayment
        of loan from officer                        
|Proceeds
        from issuance of convertible debt            
|Proceeds
        from issuance of stock, net of issuance costs
|Proceeds
        from issuance of stock and warrants          
|Proceeds
        from note receivable                         
|Proceeds
        from sale of subsidiary                      
|                                                              
|Net
        cash provided by financing activities             
|                                                              
|NET
        INCREASE IN CASH                                  
|AND
        CASH EQUIVALENTS                                  
|                                                              
|CASH
        AND CASH EQUIVALENTS -                           
|BEGINNING
        OF YEAR                                     
|                                                              
|CASH
        AND CASH EQUIVALENTS - END OF YEAR               
|                                                              
|SUPPLEMENTAL
        DISCLOSURE OF CASH FLOW                  
|INFORMATION:                                                  
|                                                              
|CASH
        PAID DURING THE YEAR FOR:                        
|Interest
        expense                                      
|                                                              
|SUPPLEMENTAL
        DISCLOSURE OF NONCASH ACTIVITIES:        
|                                                              
|Debt
        converted to equity                              
|                                                              
|Common
        stock issued for services to be provided       
|                                                              
|Common
        stock issued for deferred compensation         





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

F-7



---



CONOLOG
  CORPORATION AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
  JULY 31, 2005 AND 2004







| | NOTE
        1- | 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. In March 2004 the Company ceased operating its staffing business. The assets of the Company's wholly-owned subsidiary, Nologoc, Inc. trading as Atlas Design, were sold to the Company's vice-president of operations of Atlas Design.



| | NOTE 2- | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | ------- | ------------------------------------------



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 twelve months or less.



Inventories



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





F-8



---



CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2005 AND 2004







| | NOTE
        2- | SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
| | --------------- | -------------------------------------------------------------
| |                 |                                                              



| | 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 $50,530 and $41,255 for the years ended July 31, 2005 and 2004, respectively. Repairs and maintenance expenditures which do not extend the useful lives of the related assets are expensed as incurred.



Research and Development



Research and Development costs are expensed as incurred. Research and Development costs were $177,338 and $ 93,984 for the years ended July 31, 2005 and 2004 respectively.



Revenue Recognition



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



Advertising Costs



Advertising costs are charged to operations when incurred. Advertising expense was $7,301 and $6,994 for the years ended July 31, 2005 and 2004, respectively.



Shipping and Handling Costs



Shipping and handling costs are expensed as incurred and amounted to $10,373 and $25,627 for the years ended July 31, 2005 and 2004, respectively.





F-9



---



CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2005 AND 2004







| | NOTE
        2- | SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
| | --------------- | --------------------------------------------------
| |                 | (CONTINUED)                                       
| |                 |                                                   



Securities Issued for Services



The Company accounts for common stock issued for compensationservices of Officers, Directors and employeesby reference to the fair market value of the Companys stock on the date of stock issuance. Consulting service and commission expense is recorded at the rate that such services are normally paid at.



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.



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 preferred dividends are not reflected in arriving
  at the net loss as they are not material and would have no effect on earning
  per share available to common shareholders. The number of weighted average shares
  used in the computations were 5,024,671 and 1,537,801 for 2005 and 2004 respectively.
  The effect of assuming the exchange of Series A Preferred Stock and Series B
  Preferred Stock in 2005 and 2004 would be anti-dilutive.



F-10



---



CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2005 AND 2004







| | NOTE
        2- | SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
| | --------------- | --------------------------------------------------
| |                 | (CONTINUED)                                       
| |                 |                                                   



Loss Per Share of Common Stock(Continued)



The effect of assuming the exercise of outstanding warrants at July 31, 2005 would be anti-dilutive. The following transactions occurred after July 31, 2004, which, had they taken place during fiscal 2004, would have changed the number of shares used in the computations of earnings per share: (1) $1,094,000 debenture was converted into 1,032,076 common stock shares; (2) 470,000 common stock shares were issued as a result of warrants being exercised.



The following is a reconciliation of the computation for basic and diluted EPS:



|                                       |           |  |           | July
        31,   |   | July
        31,  
|-------------------------------------- | --------- |  | --------- | ------------------ | - | ------------------
|                                       |           |  |           | 2005               |   | 2004              
|Net
        Loss                       |           |  |           | $      (2,987,329) |   | $      (6,498,290)
|Weighted-average
        common shares |           | 
|outstanding
        (Basic)            | 5,024,671 |  | 1,537,801
|Weighted-average
        common stock  |           | 
|equivalents:                           |           |  |           |                   
|Stock
        options                  |           |  | -         |                    | -
|Warrants                               |           |  | -         |                    | -
|                                       |           |  |           |                    |   |                   
|Weighted-average
        common shares |           | 
|outstanding
        (Diluted)          | 5,024,671 |  | 1,537,801





F-11



---



CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2005 AND 2004







| | NOTE
        2- | SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
| | --------------- | --------------------------------------------------
| |                 | (CONTINUED)                                       
| |                 |                                                   



Use of Estimates



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



Recent
  Accounting Pronouncements



On December 16, 2004, the Financial Accounting Standards Board ("FASB") published Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective for small business issuers as of the first interim period that begins after December 15, 2005. Accordingly, the Company will implement the revised standard in the third quarter of fiscal year 2006. Currently, the Company accounts for its share-based payment transactions under the provisions of APB 25, which does not necessarily require the
recognition of compensation cost in the financial statements. Management is assessing the implications of this revised standard, which may materially impact the Company's results of operations in the third quarter of fiscal year 2006 and thereafter.



In November 2004, the FASB issued Financial Accounting Standards No. 151 (FAS 151), Inventory Costs  an amendment of ARB No. 43, Chapter 4. FAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and spoilage. In addition, FAS 151 requires companies to base the allocation of fixed production overhead to the costs of conversion on the normal capacity of production facilities. FAS 151 is effective for the Company in 2006. The Company does not expect FAS 151 to have a material impact on its results or financial statements.



F-12



---



CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2005 AND 2004







|NOTE 3- | 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.





|NOTE 4- | INVENTORY
|------- | ---------



| | Inventory consisted of the following as of July 31,:
| | ----------------------------------------------------



|                | 2005 |           | 2004
|--------------- | ---- | --------- | ----
|Finished Goods  | $    | 454,377   |     
|Work-in-process |      | 10,448    |     
|Raw materials   |      | 1,405,387 |     
|                | $    | 1,870,212 |     





Inventory of $970,212 was classified as non-current. Only the amount the Company expects to realize in the next operating cycle has been classified as current.





|NOTE 5- | OPERATING LEASE COMMITMENTS
|------- | ---------------------------



The Company leases their facilities and various equipment under operating leases. Total rental expense for all operating leases of the Company amounted to approximately $55,680 and $54,302 during the years ended July 31, 2005 and 2004, respectively. The Company currently leases its facilities on a month-to-month basis.



F-13



---



CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2005 AND 2004







| | NOTE 6- | INCOME TAXES
| | ------- | ------------



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



|                             |  |   |   | July
        31,
|---------------------------- |  | - | - | ----------------
|                             |  |   |   | 2005            
|Current
        Income Taxes |  | $ | - |                 
|Federal                      |  |   | - |                 
|State                        |  |   |   | (246,723)       
|                             |  |   |   | $               





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



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



|                                        |         |       |         | July
        31,
|--------------------------------------- | ------- | ----- | ------- | ----------------
|                                        |         |       |         | 2005            
|Federal
        statutory tax rate      |         | 34.0% |         | 34.0%           
|Valuation
        Allowance on Net      |         |       |         |                 
|Operating
        Loss Carryover        | (34.0%) |       | (34.0%)
|Permanent
        and other differences | -       |       | -      
|                                        |         |       |         | -%              





F-14



---



CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2005 AND 2004







| | NOTE 6- | INCOME TAXES(CONTINUED)
| | ------- | -----------------------

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



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



At July 31, 2005, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $32,860,000, which is available to offset future Federal and State taxable income, if any. The federal and state net operating loss carryforwards expire as follows:



|     |  | Federal   |            | State    
|---- |  | --------- | ---------- | ---------
|2010 |  | $         | -          |          
|2011 |  | -         |            | 6,400,000
|2013 |  | 250,000   |            | 2,985,000
|2014 |  | 1,230,000 |            | -        
|2015 |  | 960,000   |            | -        
|2017 |  | 550,000   |            | -        
|2018 |  | 1,660,000 |            | -        
|2019 |  | 860,000   |            | -        
|2020 |  | 2,140,000 |            | -        
|2021 |  | 2,650,000 |            | -        
|2022 |  | 3,150,000 |            | -        
|2023 |  | 550,000   |            | -        
|2024 |  | 6,400,000 |            | -        
|2025 |  | 2,985,000 |            | -        
|     |  | $         | 23,385,000 |          







At July 31, 2005, deferred tax assets consist of the following:



| | Net operating loss carry-forwards | $ 8,516,400 | 
| | --------------------------------- | ----------- | 
| | Less:  valuation allowance        | (8,516,400)
| | $                                 | -0-         | 
| |                                   |             | 



At July 31, 2005, the Company had deficits accumulated in the approximate amount of $28,388,000, available to offset future taxable income through 2025.  The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.



F-15



---



CONOLOG CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY 31, 2005 AND 2004







|NOTE 7- | LOAN FROM OFFICER
|------- | -----------------



Loan from officer represents advances made by an officer of the company. The advances are due one year after the date of receipt and bear interest at a rate of 4% per annum. Total advances made by the officer were $0 and $202,500 for the years ended July 31, 2005 and 2004, respectively. Repayments to the officer were $77,427 and $158,002 for the years ended July 31, 2005 and 2004, respectively. The balance due to the officer at July 31, 2005 was $0.



|NOTE 8- | PROFIT SHARING PLAN
|------- | -------------------



The Company sponsors a qualified profit sharing plan that covers substantially all full time employees. Contributions to the plan are discretionary and determined annually by management. No contributions to the plan were made during the years ended July 31, 2005 and 2004.



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 made matching contributions to the plan of $160,542 and $ 0 for the fiscal years ended July 31, 2005 and 2004 respectively.



|NOTE 9- | STOCKHOLDERS EQUITY
|------- | --------------------



The Series A Preferred Stock provides 4% cumulative dividends, which were $111,483 ($0.72 per share) in arrears at July 31, 2005. In addition, each share of Series A Preferred Stock may be exchanged for one share of Common Stock upon surrender of the Preferred Stock and payment of $48,000 per share. The Company may redeem the Series A Preferred Stock at $.50 per share plus accrued and unpaid dividends.



The Series B Preferred Stock provides cumulative dividends of $0.90 per share, which were $36,696 ($30.66 per share) in arrears at July 31, 2005. In addition, each share of Series B Preferred Stock is convertible into .005 of one share of Common Stock.



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



F-16



---



CONOLOG
  CORPORATION AND SUBSIDIARIES

NOTES
  TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY
  31, 2005 AND 2004







| | NOTE
        9- | STOCKHOLDERS
        EQUITY(CONTINUED)
| | --------------- | ---------------------------------------



On
  July 29, 2004, the Company entered into a subscription agreement with a group
  of investors for common stock and warrants to purchase shares of common stock.
  The Company sold to the investors 479,000 shares of common stock and 200,000
  warrants with an exercise price of $1.84, which expire on July 30, 2029. The
  Company received $688,500 in exchange for the shares and warrants. The warrants
  were valued using the Black-Scholes option valuation model with a resulting
  allocation of the aggregate proceeds from the subscription attributable to the
  warrants of $399,401. The following assumptions were utilized to value the warrants:
  price per share of common stock of $1.84; expected life of five years; expected
  volatility of 149%; a risk free interest rate of 3.7%; and an expected yield
  of 0.0%.



On
  February 15, 2005 the above 200,000 warrants were exercised and the Company
  received proceeds of $367,500.



On
  February 18, 2005, the Company entered into a subscription agreement with a
  group of investors for common stock and warrants to purchase shares of common
  stock. The Company sold to the investors 1,369,355 shares of common stock and
  958,549 warrants with an exercise price of $1.25, which expire on August 18,
  2010. The Company received $4,245,000 in exchange for the shares and warrants.



On
  July 19, 2005, the Company entered into a subscription agreement with a group
  of investors for common stock and warrants to purchase shares of common stock.
  The Company sold to the investors 1,200,000 shares of common stock and 1,440,000
  warrants with an exercise price of $1.6892, which expire on January 19, 2011.
  The Company received $1,500,000 in exchange for the shares and warrants.



F-17



---



CONOLOG
  CORPORATION AND SUBSIDIARIES

NOTES
  TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY
  31, 2005 AND 2004







| | NOTE
        9- | STOCKHOLDERS
        EQUITY(CONTINUED)
| | --------------- | ---------------------------------------

A
  summary of the Companys warrant activity is as follows:



|                                 |  | Year
        Ended July 31, 2005
|-------------------------------- |  | --------------------------------
|                                 |  |                                 
|                                 |  | Number                          
|                                 |  | of                              
|                                 |  | Warrants                        
|Balance
        at July 31, 2003 |  | -                               
|Issued
        April 2004        |  | 470,000                         
|Balance
        at July 31, 2004 |  | 470,000                         
|Issued
        February 2005     |  | 958,549                         
|Issued
        July 2005         |  | 1,440,000                       
|Exercised
        September 2004 |  | (270,000)                       
|Exercised
        February 2005  |  | (200,000)                       
|Forfeited                        |  | -                               
|                                 |  |                                 
|Balance
        at July 31, 2005 |  | 2,398,549                       





| | NOTE
        10- | CONVERTIBLE
        DEBENTURES
| | ---------------- | ------------------------------

On
  April 26, 2004, the Company entered into a Securities Purchase Agreement with
  an investor, whereby the Company issued and sold to the investor, in a private
  placement, a $1,200,000 principal amount Secured Convertible Term Note and warrants
  to purchase 270,000 shares of common stock. The principal amount of the note
  was repayable at the rate of $50,000 per month, plus accrued interest, if any,
  commencing on May 1, 2005 and may be paid at the investors' option in cash or
  shares of the Company's common stock at the conversion rate of $1.06.



The
  270,000 warrants were exercised on September 27, 2004 at anexercise price of 1.59. The warrants were valued
  using the Black-Scholes option valuation model with a resulting allocation to
  interest expense of $1,200,000. The following assumptions were utilized to value
  the warrants: price per share $4.55; expected life of seven years; expected
  volatility of 151%; a risk free interest rate of 3.4%; and an expected yield
  of 0.0%.



As
  ofJuly
  31, 2004, $106,000 of principal was converted into 100,000 common shares. During
  Fiscal 2005, the remainder of $ 1,094,000 of principal was converted into 1,032,076
  common shares.



| | NOTE
        11- | MAJOR
        CUSTOMERS
| | ---------------- | -----------------------

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





F-18



---



CONOLOG
  CORPORATION AND SUBSIDIARIES

NOTES
  TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY
  31, 2005 AND 2004







|                   |  | Sales
        to Major | Number
        of |           | Percentage
        of
|------------------ |  | ---------------------- | ----------------- | --------- | ---------------------
|Year
        Ended |  | Customers              |                   | Customers |                      
|2005               |  | $                      | 342,271           |           | 2                    
|2004               |  | $                      | 414,684           |           | 2                    



| | NOTE
        12- | STOCK
        OPTION PLAN
| | ---------------- | -------------------------



2002
  Stock Option Plan



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



As
  of July 31, 2005, there had been no shares granted under the 2002 Plan.





| | NOTE
        13- | PREPAID
        CONSULTING
| | ---------------- | --------------------------



During
  Fiscal Year July 31, 2005, the Company issued 117,000 shares of common stock
  to various consultants for services. Of these, 37,500 shares issued were for
  services that extend into the future and are amortized against invoices billed
  by the consultants for actual services rendered 79,500 of the shares issued
  were for services performed in fiscal year 2005 and were expensed in value at
  the date of the agreement, as there was no readily determinable value for the
  consulting services provided or to be provided. The Company accounted for the
  prepaid value of consulting services in accordance with EITF 00-18, Accounting
  Recognition for Certain Transactions Involving Equity Instruments Granted to
  Other Than Employees.





F-19



---



CONOLOG
  CORPORATION AND SUBSIDIARIES

NOTES
  TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JULY
  31, 2005 AND 2004









| | NOTE
        14- | DISCONTINUED
        OPERATIONS
| | ---------------- | -------------------------------



On
  April 30, 2004, the Company sold the assets of its' wholly owned subsidiary,
  Nologoc Corporation, T/A Atlas Design, Incorporated. The decision to sell the
  component was based on the intensely competitive and highly fragmented nature
  of the placement services business. The subsidiary was sold to the vice-president
  of operations of Atlas Design. The Company received $34,000 of proceeds and
  recorded a loss from the disposal of $127,889. Net sales of Atlas Design, Incorporated
  were $439,174 and $783,195 for the years ended July 31, 2004 and 2003, respectively.





| | NOTE
        15- | SUBSEQUENT
        EVENTS
| | ---------------- | -------------------------



| | None
| | ----





F-20





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